Certified Professional in Health Care Risk Management (CPHRM) 2025 – 400 Free Practice Questions to Pass the Exam

A captive insurance company is fundamentally defined by its ownership structure, where it is created and owned by its insureds (the company owners and beneficiaries). This allows the organization to have direct control over its insurance needs, including risk management strategies, insurance policies, and financial reserves.

This ownership structure differentiates captives from traditional insurance companies, which are typically owned by shareholders and operate for profit. Captive insurance companies are formed specifically to insure the risks of their parent company or its affiliates, which provides them with tailored coverage that meets their specific requirements.

The other options do not capture the essence of what defines a captive insurance company. While compliance with government regulations is indeed necessary for all insurance companies, including captives, it is not what primarily distinguishes them. Similarly, while captive insurance can be utilized by high-risk industries, this is not a defining feature, as captives can serve a wide range of industries. Ownership by the state refers to government-run insurance programs and does not relate to the concept of a captive, which is typically privately owned. Hence, the emphasis on control by the company owners and beneficiaries accurately highlights the main characteristic of a captive insurance company.