# Captive, Large Deductible or Self-Insured Retention: Three Ways Contractors Retain Risk URL: https://mycontractorsinsurancequote.com/resources/captive-vs-large-deductible Updated: 2026-10-29 · Reviewed by the Principal, Gleason Insurance Brokers, LLC Publisher: My Contractors Insurance Quote, a website of Gleason Insurance Brokers, LLC An established contractor or developer that wants to keep part of its own losses usually weighs three structures: a large deductible policy, where the insurer pays claims and is reimbursed; a self-insured retention, where the insured pays its own losses before the policy attaches; and a captive, where the firm owns an insurer that funds a retained layer. Each changes who pays first, how collateral works and how much control the firm has over claims. Fit depends on the firm's losses, capital and contracts, and each option is subject to underwriting and the terms of the policies issued. ## Key Decision Points - In a large deductible policy, the insurer typically pays the claim and then seeks reimbursement, so insureds commonly post collateral. - In a self-insured retention, the insurer's obligation generally attaches only after the insured pays the retained amount. - A captive is a separately licensed insurer the firm owns, which adds capital, governance and operating cost. - Texas, Arizona and Nevada each have statutes on workers' compensation deductibles, including reimbursement and, in Nevada, collateral. - Many firms move from a higher deductible to a captive only after several years of credible loss data. ## The Large Deductible Policy In a large deductible program, the insurer issues a standard policy, pays covered claims from the first dollar and then bills the insured for the losses within the deductible. The NAIC's guidance for receivers describes workers' compensation policies where the insurer pays the claim and seeks the deductible from the insured, and notes that insureds commonly post collateral for those reimbursements. Because the insurer is on the hook to injured workers or claimants first, the certificate looks like any other policy, which can make a large deductible easier to fit into owner and lender requirements than some other retained structures. Where one project needs dedicated limits instead, see [project-specific liability insurance](https://mycontractorsinsurancequote.com/project-specific-liability-insurance). ## The Self-Insured Retention With a self-insured retention, the insured typically handles and pays losses up to the retention itself, often through a third-party administrator, and the insurer's obligation attaches above that amount. The NAIC distinguishes these non-advancement structures, where coverage attaches only after the insured pays its share, from large deductible policies where the insurer pays first. A retention gives the insured more control over claims but also more administrative work and, under some contracts, questions about whether additional insureds have coverage within the retention. Contract exhibits sometimes limit retention sizes, so they are checked first. How retentions interact with additional insured status is part of [subcontractor certificates and additional insureds](https://mycontractorsinsurancequote.com/resources/completed-operations-and-subcontractor-work). ### Illustrative scenario: A Reno Grading Contractor Steps Up Its Retention A Reno grading contractor with steady comp and auto losses moves its workers' compensation to a large-deductible program. Because its deductible is above $25,000 per claim, the agreement is filed with the Nevada Division of Insurance and the insurer may require collateral, here a letter of credit. Two years later, with five years of credible data, the contractor studies a captive for its auto liability layer, knowing that a Nevada captive could write excess comp or reinsure a certified self-insurer but not primary comp. The details are hypothetical, and a real decision would depend on the insurer, the program and the firm's own risk. ## The Captive A captive is a licensed insurance company the firm owns, alone or with others. It usually reinsures or directly writes a retained layer, often behind a fronting insurer that issues the policies, and it holds capital and reserves under its domicile's rules. Compared with a deductible or retention, a captive adds formation and operating cost but can give the owners a share of the underwriting result, access to reinsurance markets and a structure that can serve several affiliates or members. The structures and who they typically fit are covered in our overview of [construction captive programs](https://mycontractorsinsurancequote.com/construction-captive-insurance-programs). ## State Rules on Workers' Compensation Deductibles Workers' compensation deductibles follow state law. Texas Insurance Code sections 2053.202 and 2053.203 require insurers to offer deductible plans, allow larger negotiated deductibles and provide that the insurer pays benefits within the deductible while the policyholder reimburses, with rules for adequate security. Arizona's A.R.S. 23-963.01 has the carrier pay compensable claims and the employer reimburse up to the deductible, and the carrier still owes compensation if the employer does not. Nevada's NRS 686B defines a large-deductible agreement as one where the policyholder bears $25,000 or more per claim or occurrence, sets collateral requirements for certain insurers and has the agreement filed with the Division of Insurance. In each state, the deductible changes who reimburses whom; the injured worker's benefits continue to come from the insurer. Why a Texas captive cannot write comp, which makes a deductible a common alternative, is explained under [Texas captive rules, including comp limits](https://mycontractorsinsurancequote.com/construction-captive-insurance-programs/texas). ## Choosing Among the Three Firms often move in stages. A contractor with a few years of steady losses may start with a higher deductible, add a retention on some lines as its claims management matures and study a captive once its loss data is credible and its premium supports the fixed cost. The right answer depends on the lines involved, state limits, the contracts' certificate terms and the owners' appetite for capital and collateral. - Large deductible: insurer pays first, insured reimburses, collateral common - Self-insured retention: insured pays first, policy attaches above, more claims control - Captive: owned insurer finances a layer, more capital and governance, possible share of results When a captive becomes worth testing is the subject of our [captive feasibility review](https://mycontractorsinsurancequote.com/resources/construction-captive-feasibility). ## Before You Ask for a Quote ### What to Gather - Loss runs by line for five or more years - Current deductibles, retentions and collateral posted - Contract exhibits that limit deductibles or retentions - Claims administration arrangements, if any ### What to Ask the Insurer or Surety - Who pays claims first under each option? - What collateral will each option require, and how is it released? - Do our contracts limit retention sizes or require first-dollar coverage? - At what point would a captive be worth a feasibility study? ## Broker Notes **Quick Answer:** A large deductible policy pays claims first and seeks reimbursement, usually against collateral; a self-insured retention has the insured pay first before the policy attaches; a captive is an owned insurer that finances a retained layer with its own capital. Fit depends on losses, capital and contracts. **Common Mistake:** Treating a self-insured retention like a deductible on contract certificates. Some owners require first-dollar coverage for additional insureds, which a retention may not provide. **Broker Perspective:** We compare the three side by side on the same loss data and collateral terms, then check the largest contracts for limits on retentions before recommending a direction. **Coverage Impact:** Each structure changes who pays retained losses first; the coverage itself depends on the policy forms, endorsements and, for a captive, the fronting and reinsurance terms. ## Questions Buyers Ask ### What is the main difference between a deductible and a self-insured retention? Under a large deductible the insurer typically pays the claim and seeks reimbursement; under a self-insured retention the insured generally pays its losses first and the policy attaches above the retained amount. ### Why do large deductible programs require collateral? Because the insurer pays claims before the insured reimburses it, the insurer usually wants security, such as a letter of credit, for those reimbursements. Nevada sets collateral requirements by statute for certain insurers. ### Is a captive just a bigger deductible? No. A captive is a licensed insurer the firm owns, with its own capital, governance and reinsurance, and it can serve affiliates or several members. That adds cost and commitment beyond a deductible. ### Does a deductible change an injured worker's benefits? No. In Texas, Arizona and Nevada the insurer pays benefits and is reimbursed under the deductible terms; the worker's claim runs through the insurer. ## Official Sources 1. [Glossary of Insurance Terms](https://content.naic.org/glossary-insurance-terms), National Association of Insurance Commissioners. Defines fronting (a primary insurer issues the policy as insurer of record and passes the risk to a reinsurer), captive insurer, deductible and unauthorized reinsurance. Verified 2026-10-25. 2. [Receivers' Handbook, large deductible policies](https://content.naic.org/sites/default/files/inline-files/Receivers%20Handbook%20Large%20Deductible%20Policies.pdf), National Association of Insurance Commissioners. On some workers' compensation policies the insurer pays the claim and seeks the deductible from the insured, and insureds commonly post collateral; non-advancement policies attach only after the insured pays its deductible or retention. Verified 2026-10-25. 3. [Texas Insurance Code sections 2053.202-2053.203 (workers' compensation deductible plans)](https://tcss.legis.texas.gov/resources/IN/htm/IN.2053.htm), Texas Legislature. Insurers offer deductible plans and may negotiate larger deductibles; the insurer pays benefits within the deductible and the policyholder reimburses, with rules for adequate security. Verified 2026-10-25. 4. [A.R.S. 23-963.01 (workers' compensation deductibles)](https://www.azleg.gov/ars/23/00963-01.htm), Arizona State Legislature. The carrier pays compensable claims and the employer reimburses up to the deductible; the carrier still owes compensation if the employer does not reimburse. Verified 2026-10-25. 5. [NRS 686B.17595-686B.17863 (large-deductible agreements)](https://www.leg.state.nv.us/NRS/NRS-686B.html), Nevada Legislature. Defines a large-deductible agreement as one where the policyholder bears $25,000 or more per claim or occurrence and sets collateral requirements for certain insurers. Verified 2026-10-25. 6. [Form NDOI-1112, Nevada large deductible filing](https://doi.nv.gov/uploadedFiles/doi.nv.gov/Content/Insurers/Property_and_Casualty/Filing_Information/Revised%202.6.2025%20NDOI-1112_NV_Large_Deductible_form.pdf), Nevada Division of Insurance. Each risk with a deductible of $25,000 or more is filed, with proof of the collateral option used. Verified 2026-10-25. ## Related Decisions - [construction captive programs](https://mycontractorsinsurancequote.com/construction-captive-insurance-programs) - [fronting carriers and collateral](https://mycontractorsinsurancequote.com/resources/captive-fronting-and-collateral) - [captive programs for general contractors](https://mycontractorsinsurancequote.com/construction-captive-insurance-programs/general-contractors) - [captive programs for civil contractors](https://mycontractorsinsurancequote.com/construction-captive-insurance-programs/civil-infrastructure-contractors) --- Start a quote request: https://mycontractorsinsurancequote.com/get-a-quote · Call 844-978-7283 Contract and insurance reviews are a courtesy service that may be available at times, depending on our workload and on the size, timing and complexity of the project. A review is not guaranteed and is limited to insurance considerations. It is not legal advice and is not a substitute for advice from your own legal counsel, which you may need before signing a contract or obtaining coverage. Insurance and surety services are provided through Gleason Insurance Brokers, LLC. Site information is educational and does not constitute legal advice, a binder, an offer of coverage, a guarantee of eligibility or confirmation of policy terms. Insurance conditions are governed by actual issued policies; surety rights and obligations are governed by bond and indemnity documents.