A few companies have found that the costs of captive insurance purchasing an insurance policy actually outweigh their potential losses. Forming captive manager companies permits a business to notably reduce its spending on insurance policies. Insurance rates are calculated using the financial risks of a company, but if one business has much less risk than another in its industry, it may wind up paying more than is necessary simply because of insurance company policies. They also have to add to premiums and rates in order to make up for overhead costs and make a profit. This pricing inefficiency does not occur with the agencies. Captive agencies are able to make operating policies that are not full of the legal red tape that make most insurance policies so hard to deal with.

Captive insurance arrangements must come under the requirements of contract, insurance, and tax laws. For example, if an established business forms a sister company for use as a captive manager company, the two must be completely separate in legal and tax terms. The captive company must be handled as an insurance company in order for the insured to claim deductibles for their payments on their taxes.