Georgia Property & Casualty Practice Exam

Which type of insurance company covers only the risks of its parent organization?

1. Stock insurance company

2. Captive insurance company

3. Mutual insurance company

4. Reinsurance company

The correct answer is: Captive insurance company

The correct answer, captive insurance company, refers to an insurance entity that is established to insure the risks of its parent organization. This type of company is created primarily to provide coverage for the specific needs of the parent firm, which often leads to a more tailored insurance solution that can help manage risks more efficiently. Captive insurance allows businesses to have more control over their insurance costs and the coverage provided, often resulting in potential savings and a better understanding of their own risk profile. Since the captive is designed to serve solely its parent organization, it typically does not offer coverage to outside clients or additional insured entities. In contrast, a stock insurance company operates on a for-profit basis and issues shares to investors. It provides insurance coverage to a broader audience rather than being limited to a single entity's risks. A mutual insurance company, on the other hand, is owned by its policyholders and is structured to provide insurance coverage to its members, not just a single parent organization. Lastly, a reinsurance company specializes in providing insurance to other insurance companies, thus not covering the direct risks of any single parent entity.