If you’re a business owner, you’ve probably noticed something frustrating about insurance today:
Premiums keep rising, but coverage often feels like it’s shrinking.

Many mid-sized companies assume insurance works like a safety net—pay the premium, and the policy will respond when something goes wrong.
But modern commercial policies are full of exclusions, endorsements, sublimits, and conditions that can leave businesses exposed.

This is why more companies are exploring captive insurance—not just as a cost strategy, but as a way to cover risks the traditional market increasingly excludes.

Why Traditional Policies Leave Gaps

Insurance carriers constantly adjust coverage based on loss trends, litigation, inflation, and emerging risks.
As a result, many policies today exclude or severely limit exposures that businesses face every day.

Common Examples of Exclusions

Cyber Incidents
Many general liability policies exclude cyber-related losses entirely, even though ransomware and data breaches affect businesses of every size.

Environmental and PFAS-Related Claims
Pollution exclusions are common, and newer environmental liabilities such as PFAS (“forever chemicals”) have created uncertainty for insurers.

Contractual Liability Gaps
Businesses often sign contracts requiring certain protections, but insurance policies may not respond to all contractual obligations.

Business Interruption Limits
Property insurance may cover physical damage, but many companies learned during COVID-era disruptions that supply chain losses often fall outside coverage.

A Real Example: PAGA Lawsuits in California

In California, employers face unique exposure under the Private Attorneys General Act (PAGA).
These claims can create major wage-and-hour liability, and many traditional insurance policies do not cover them.

PAGA is also part of a broader trend: emerging litigation and regulatory risks that fall outside standard coverage until after losses occur.

How Captives Help Fill the Gaps

A captive insurance company is a licensed insurer owned by the business it insures.
Captives allow companies to insure specific exposures that are excluded, too expensive, or difficult to place in the commercial market.

Captives typically complement commercial insurance rather than replace it.
A business may keep traditional coverage for catastrophic protection while using the captive to address carve-outs and exclusions.

Using Difference in Conditions (DIC) Policies

One powerful tool within a captive is a Difference in Conditions (DIC) policy.
A DIC policy is designed specifically to fill gaps between what a commercial policy covers and what the business actually needs.

For example, if a carrier excludes a certain category of loss, a captive-issued DIC policy can be structured to respond—creating a more complete risk program.

Group Captives vs. Cell Captives

When using a captive to cover specialized exclusions, structure matters.

Group captives involve shared underwriting results across unrelated members, which can create free-rider issues and limit flexibility.

Cell captives separate each participant’s results, offering more control, transparency, and independence—often ideal for targeted coverage gaps.

Do I Have to Manage the Captive Myself?

A common misconception is that forming a captive means running an insurance company.

The answer is no. Captives are professionally managed structures.
At 3F Captive Services, we handle compliance, reporting, administration, and ongoing management so business owners can stay focused on their core operations.

Frequently Asked Questions

Q: Can a captive insure risks my carrier excludes?
A: Yes. Captives are often used specifically to address exclusions and market limitations.

Q: What is a DIC policy?
A: A Difference in Conditions policy fills gaps between commercial coverage and uncovered exposures.

Q: Are PAGA claims typically covered by insurance?
A: Many wage-and-hour and PAGA-related exposures fall outside traditional coverage.

Q: Why choose a cell captive over a group captive?
A: Cell captives provide separation from other participants’ losses and more control over coverage design.

The Bottom Line

Traditional insurance policies are excluding more risks every year, leaving businesses exposed.
A captive—especially paired with DIC coverage—can help companies address gaps, stabilize their insurance strategy, and regain control over protection.

Sources

Insurance Information Institute – iii.org
Swiss Re Institute Reports – swissre.com
NOAA Billion-Dollar Weather and Climate Disasters – ncei.noaa.gov
California Department of Industrial Relations – PAGA Overview – dir.ca.gov

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