The basic insurance needs of the man in the street, such as car insurance and household insurance, are sufficiently catered for by the short-term insurance industry in South Africa. But what happens if a big industrial company cannot find an insurer who is prepared to take on their specialized risk?

A captive insurance company can be set up by a large industrial or commercial business, or a group of companies, with the purpose of carrying the insurance risks of the “parent” company. The parent company or group of companies will have one hundred percent ownership of the captive insurance company.

By setting up their own insurance company the group maintain the risk as well as the premiums within the enterprise. When a business cannot find commercial insurance for their specific type of business within the insurance market, they may consider the option of forming their own captive insurer.

However, not every business can decide to form its own captive insurance company. There is very strict legislation that needs to be adhered to when setting up a financial institution and the likelihood of companies taking this option is very small. Captive Insurance companies in South Africa must be registered and licensed by the Financial Services Board. Some companies have set up their captive insurers off-shore.