Fleets Ditch Insurers as Captives Cut Costs by 30%
Commercial auto liability has not turned a profit since 2010.
With insurers relying on investment income rather than underwriting to stay afloat, captives and alternative risk structures are emerging as a way for fleets to regain control of their insurance costs and financial performance.
The math behind commercial auto liability insurance has been broken for years. In 2010, the loss ratio hit 97.1%, leaving insurers with a razor-thin 2.9% underwriting margin. Since then, the sector has failed to turn a profit on underwriting alone. Frank Kneeland, Senior Vice President of Sales at Reliance Partners, explains why insurers continue to thrive despite these losses.
“Most of these insurers are essentially massive banks or investment firms. They’re investing the premium dollars they collect, which is part of why many require a finance agreement or payment in full. They want that money working for them as soon as possible. That’s how they turn a profit even in a bad underwriting year.”
Frank Kneeland·Senior Vice President of Sales, Reliance Partners
Even operators with strong safety records see premiums rise when the broader market underperforms. Kneeland notes that the bottom 30% of performers in the standard market often offset losses for the rest, dragging up costs for everyone, regardless of individual performance. “Everyone in the standard market is affected if the larger group of insureds performs poorly,” he says. “Even the best operators running clean can see an increase because of everyone else in the pool.".
How Captives Flip the Script on Risk: Fleets
Captives and alternative risk structures offer fleets a way out of this cycle. Instead of handing premiums over to insurers and hoping for the best, fleets that join a captive retain more responsibility for their own losses, and share in the financial upside. “You’re returning the underwriting profit, the unspent premium, and the investment income that accrued over the term back to the fleet instead of the insurer,” Kneeland explains.
This shift changes the entire conversation around insurance. Rather than focusing solely on premiums, fleets begin to evaluate their total cost of risk, including claims, expenses, reinsurance, and performance. “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 says. For brokers, this means digging deeper into a fleet’s operations, safety programs, and leadership’s long-term commitment to risk management.
A group captive narrows the pool of insureds to best-in-class operators, cutting out underperformers who drag down the standard market. “When you enter a group captive, you’re shrinking the group down to a very limited pool of best-in-class operators,” Kneeland says. “You’re cutting off the members who were dragging down the standard market the most, while allowing everyone left to share in the underwriting profit and keep rates stable year over year.”
Kneeland advises starting mid-term rather than waiting for a renewal date. “This is a more complex product, and clients join because of the benefits it provides, but there’s generally more up-front cost because of collateral requirements,” he says.
“Have a very honest conversation about your fleet’s current safety program and your overall cost of risk,” he advises. “Without a strong safety program, this isn’t going to be the right fit.".
The rise of captives reflects broader frustration with the traditional insurance market. “Honestly, I just think the traditional market is such a mess right now that more companies than ever are trying to find ways to control their costs and get rewarded more fairly for their safety efforts,” Kneeland says. For fleets willing to take a long-term view, captives offer a way to align insurance costs with performance, and keep more of the financial upside for themselves.
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