To understand why captives and alternative risk structures are drawing so much attention from fleets right now, it helps to start with the market they operate in. Years of pricing volatility in trucking insurance have many fleets rethinking how they finance their risk.
So how do insurance companies stay in business? Frank Kneeland, Senior Vice President of Sales at Reliance Partners, says the answer involves more than underwriting alone.
As Kneeland explained, insurance companies generate revenue through underwriting results and investment income. Premium collection and payment arrangements vary by carrier and policy, and investment returns are one component of an insurer’s overall financial performance.
Captive and alternative risk structures are designed to change that dynamic. Rather than transferring risk entirely to a traditional insurer, a fleet that joins a captive retains more responsibility for its own losses. In exchange, the fleet may share in the financial results of the program, whether favorable or unfavorable.
Depending on the captive’s structure and financial performance, Kneeland said, participating fleets may have the opportunity to share in favorable underwriting results and investment income. Any potential distributions are subject to governing agreements, claims experience, expenses, reserves, and other financial obligations.
According to Kneeland, this has a massive effect on the entire interplay between a fleet and its broker. “It changes the conversation from simply comparing premiums to looking at the fleet’s total cost of risk: claims, expenses, reinsurance, performance, all of it,” Kneeland said.
That, in turn, changes what a broker actually needs to understand about a client’s operation.
“We have to understand how the fleet operates, how claims are handled, and whether its leadership is prepared to manage risk over the long term,” Kneeland said. “A captive can create more involvement and potential upside, but it also requires engagement discipline, and a willingness to retain more risk.”
Explained simply, a captive gives a fleet a more active role in funding its own insurance losses. In the standard market, risk is pooled across a broad base of insureds.
“Broader loss trends can affect pricing across the standard market, even for fleets with favorable individual claims experienceEven the best operators running clean can see an increase,” Kneeland said.
A group captive narrows that pool dramatically. “When you enter a group captive, you’re shrinking the group down to a more selective group of operators,” Kneeland said. Group captives generally bring together organizations with similar risk management objectives and underwriting characteristics. Strong collective performance may create opportunities for favorable financial results and greater long-term cost predictability, although neither profitability nor rate stability is guaranteed. Members also remain exposed to other members’ adverse loss experience, subject to the program’s terms. That potential for predictability, Kneeland said, tends to draw the fleets who ultimately become strong candidates. It especially appeals to safety-focused operators who feel their safety performance hasn’t been fully reflected in their pricing.
Even among brokers, Kneeland said, there’s a persistent misunderstanding about what a captive actually involves.
“The goal isn’t really about hoping to share in some theoretical underwriting profit,” Kneeland said. “In reality, you’re retaining a higher level of risk, in exchange for the opportunity to participate in the program’s results, including investment income.” Depending on the captive’s structure, participants may also have greater involvement in claims oversight, loss-control strategies, and the selection or evaluation of claims administration services. The level of control varies by program and its governing agreements.
Predictability matters, too. One of the goals of many captive programs is greater long-term cost predictability, which can help fleets plan ahead, although results vary by program and future pricing isn’t guaranteed. Unexpected renewal increases can be difficult for any fleet to absorb, especially given the thin margins and bottlenecked cash flow that characterize the industry.
Control extends well beyond the balance sheet. Kneeland points to the connection between safety performance and insurance outcomes as one of the most underappreciated benefits of moving into a captive.
“In the standard market, a fleet may feel like its investment in safety isn’t reflected in its pricing,” Kneeland said. “In a captive, members may have more visibility into the program’s losses.”
The advantages can extend beyond cost control, too. Depending on the program, fleets that make the move may also gain better access to claims data, more active loss-control support, and a longer-term view of their own risk profile.
If your fleet is exploring a captive for the first time, Kneeland breaks the process into three stages: discovery, quoting, and timing.
Discovery starts with understanding a fleet’s operations, current program, financial capacity, and goals, followed by a review of loss history and standard underwriting information to determine whether the risk is even suitable for the structure. From there, the quoting process involves underwriting, actuarial analysis, a review of the captive’s rules and financials, collateral requirements, and working through reinsurance and fronting arrangements.
How long that takes depends heavily on the path. “If a fleet is joining an established group captive, the process may take a few months, depending on how quickly we’re able to get the necessary information,” Kneeland said. “A new program or structure can take considerably longer.”
Timing the start of that process matters just as much as the process itself.
“I like to start this mid-term rather than trying to line it up with the renewal date,” Kneeland said. “This is a more complex product, and clients join because of the potential benefits it can provide, but there’s generally more up-front cost because of collateral requirements. Not being boxed in by a deadline lets the company really learn and understand the commitment before the pressure of a renewal is bearing down on them.”
If there’s one blind spot Kneeland keeps running into, it’s a fixation on premium at the expense of everything else. “Total cost of risk — that’s the piece so many fleets miss, because they’re so focused on the premium number that they don’t look at the full picture,” he said.
The full picture includes losses retained through deductibles, funding collateral, and the expenses that come with absorbing claims.
Kneeland also stresses the importance of due diligence when evaluating Risk Retention Groups (RRGs).
“These are a hugely important part of the conversation right now,” Kneeland said. RRGs can provide alternative liability coverage options, but fleets should carefully evaluate each group’s financial condition, policy exclusions, claims-paying ability, and regulatory structure. Unlike traditional admitted insurers, RRGs generally do not participate in state insurance guaranty funds, which makes financial due diligence especially important.Saving a small amount on premium can be a poor decision if a fleet hasn’t actually evaluated any program.
“The right comparison isn’t one premium against another,” Kneeland said. “It’s the full cost, the protection being provided, and how the structure fits the fleet’s risk and financial capacity.”
Why Now
The trucking insurance market’s volatility over the past several years hasn’t gone unnoticed, and Kneeland sees a direct line between that volatility and the growing interest in alternative risk. “When the traditional market gets volatile, fleets start asking whether there are other ways to finance risk and gain more control over their insurance costs,” he said. “Alternative risk structures give qualified fleets a way to take a longer-term view and connect their own performance more directly to their insurance results.”
What’s the underlying cause? According to Kneeland, the traditional trucking insurance market has experienced significant pricing volatility and capacity challenges, which has led more fleets to explore alternative risk structures, look for ways to better manage their long-term insurance costs, and see their safety efforts reflected in their insurance results.
Getting Started
If you’re a fleet owner or manager and you’re sitting on the fence, Kneeland’s advice starts before any underwriting data gets pulled together.
“Have a very honest conversation about your fleet’s current safety program and your overall cost of risk,” he said. “Without a strong safety program, this isn’t going to be the right fit.”
From there, timing becomes the central issue again. “We have to start these conversations early, so the fleet actually understands its options,” Kneeland said. “We don’t want to start this a month before renewal and expect results. Education and really understanding the risk matter enormously.”
For well-performing fleets, Kneeland said, a captive may provide an opportunity to participate in favorable underwriting and investment results that generally would not be available through a traditional guaranteed-cost insurance program. However, those potential benefits must be evaluated against the additional risk, capital commitments, and financial obligations associated with captive participation. Click here to learn more about Reliance Partners.
Disclosure: Captive insurance and alternative risk financing arrangements are not suitable for every business. Participation may involve additional financial obligations, including collateral requirements, retained losses, assessments, and other contractual commitments. Underwriting profits, investment income, premium distributions, and cost savings are not guaranteed and depend on the specific program structure, claims experience, financial performance, and governing agreements. Coverage terms, exclusions, claims administration, regulatory protections, and financial obligations vary by program. Businesses should carefully review all applicable agreements and financial requirements with qualified insurance, legal, and financial advisors before participating.
