Insurance Broker vs. Captive Structure: The Real Cost Over 10 Years

Most real estate owners buy insurance the same way every year: a broker markets the account, a carrier quotes it, the owner pays. Comparing an insurance broker vs. a captive structure over 10 years shows what that routine costs, and what a different structure can return. This isn’t a knock on brokers. It is a look at how the structure works.

How broker compensation works

Your broker isn’t your adversary. Most brokers work hard to find competitive coverage and handle complex placements. The issue is structural. Brokers are typically paid a commission on the premium they place, often 10% to 15% for commercial lines. On a $500,000 annual program, that is about $50,000 to $75,000 a year, paid by carriers and funded by your premium. Some brokers also earn contingent commissions tied to the volume and profitability of business placed with a carrier.

Because pay is a percentage of premium, a broker who cuts your premium by 20% cuts their own income by 20%. A move into a captive can reduce commission income too. The incentives don’t naturally favor the captive conversation.

The 10-year model: traditional placement (illustrative example)

Assumptions: a 400-unit portfolio, $450,000 a year in total insurance spend, 8% annual premium growth and a 20% blended loss ratio.

• Year 1: $450,000 in premium, with an estimated $225,000 in carrier underwriting profit

• Year 3 cumulative: $1,469,000 in premium, with an estimated $734,500 in carrier underwriting profit

• Year 5 cumulative: $2,640,000 in premium, with an estimated $1,320,000 in carrier underwriting profit

• Year 10 cumulative: $6,514,000 in premium, with an estimated $3,257,000 in carrier underwriting profit

Over 10 years, this portfolio would send roughly $3.25 million in underwriting profit to carriers, separate from claims. Ten years of broker commissions would add roughly $650,000 to $975,000. Our post on underwriting profit explains where that margin comes from.

The 10-year model: captive structure (illustrative example)

Same portfolio, same premium, same coverage terms:

• Year 1 distributions: an estimated $60,000 to $75,000

• Year 3 cumulative: $200,000 to $250,000

• Year 5 cumulative: $380,000 to $480,000

• Year 10 cumulative: $900,000 to $1,150,000

A captive doesn’t recapture every dollar of carrier underwriting profit, but it returns a meaningful share of it to ownership. That is $900,000 to $1,150,000 back over 10 years versus $0 in the traditional model. These figures are illustrative, not a quote. If resident lines are part of the program, our programs have consistently averaged 75% to 93% resident enrollment over time.

Working with your broker, not against them

Brokers bring real value on complex placements: carrier negotiations, multi-state compliance and specialty lines that don’t fit captive economics. A captive doesn’t replace the broker on every line.

The best candidates for a captive are lines with favorable economics: resident liability, workers’ comp and general liability. Lines that need specialist expertise, such as catastrophe-exposed property, specialty liability and surety, often stay in the traditional market. To find your own number, calculate what your portfolio pays in carrier underwriting profit today.

How Insur3Tech fits

Insur3Tech’s captive has no minimum premium and no unit minimum; portfolios as small as 4 doors can join. There are no holdout periods. The entire program is reinsured, so you carry no downside risk. What isn’t spent on claims comes back to you. We insure 100,000+ doors.

Want your own 10-year comparison? Book a free discovery call. We’ll audit your portfolio for free and tell you how much you can expect to get back every year.