Article

In today's risk environment, organizations increasingly seek sophisticated solutions to manage their exposures to large or catastrophic losses. Captive insurance companies—vehicles established and owned by businesses to insure their own risks—offer unique ways to deliver excess and umbrella liability coverage. These structures are essential for high-performing businesses aiming to regain control, optimize premium retention, and improve coverage flexibility in response to market volatility.

What Is Excess and Umbrella Coverage?

Excess Insurance:
Excess insurance provides additional financial limits beyond the primary (or underlying) insurance policy. It does not broaden terms or conditions—rather, it simply extends the dollar amount available to cover catastrophic claims or high-severity losses. The coverage only activates once the underlying policy's limit is exhausted, and it strictly follows the terms and definitions of that primary policy.

Umbrella Insurance:
Umbrella coverage is a form of excess insurance, but it delivers broader protections than straight excess policies. It not only extends liability limits above those of the primary policy, but it can also fill gaps by covering claims not included in the underlying policy, or by “dropping down” when aggregate coverage limits are exhausted. Umbrella policies often include a self-insured retention (SIR), similar to a deductible, for these gap-filling functions.

Feature	Excess Liability	Umbrella Liability
Increases policy limits	Yes	Yes
Broadens policy terms	No	Yes (in most forms)
Coverage gaps filled	No	Yes (sometimes drops down for broader risks)
Follows underlying	Strict “follow form”	May broaden and extend beyond underlying coverage
Retention/SIR	Typically none	Usually applies for uncovered losses

How Captive Excess & Umbrella Structures Work

Example Structure

A typical captive insurance excess/umbrella program may include:

• Primary Layer: The captive covers self-insured retentions and primary claims up to a negotiated limit.
• Excess Layer: The captive may provide an excess layer of coverage above the primary, retaining additional risk up to a pre-set limit.
• Umbrella Layer: The captive, or a combination of captive and commercial partners, may provide umbrella coverage that “drops down” to cover gaps or additional risks.
• Reinsurance: To cap exposures, the captive may purchase reinsurance (specific excess or aggregate/stop-loss), limiting its own losses for catastrophic or aggregate claim events.

This model allows for dynamic layering—maximizing retained premium and operational control, while still limiting overall exposure.
Innovations and Market Trends

• Customization: Modern captive solutions can deliver tailored excess and umbrella programs, responding to line-of-business or jurisdiction-specific needs.
• Self-Insured Retentions: Umbrella coverage in captives often applies a SIR, for better alignment with company risk appetite.
• Aggregate Stop-Loss: Captives frequently use aggregate excess or “stop-loss” reinsurance to limit annual total losses and protect against a frequency of smaller claims.
• Cost Mitigation: Captives help organizations manage excessive premium increases seen in the commercial market for high layers of liability coverage.

When to Consider Captive-Based Excess or Umbrella

• If your organization sees substantial premium volatility in the commercial insurance market.
• If your loss experience is better than industry averages and you wish to recapture underwriting profit.
• If specific, high-limit coverage is unavailable, restrictive, or cost-prohibitive from standard carriers.
• Where organizational control over claims handling and policy scope is strategically advantageous.

Key Considerations

• How much limit do your business need and how much premium is currently being spent? Often excess and umbrella coverage offers high limits for a relatively affordable premium. Is your business prepared to retain an excess layer, often up to and above $5m in risk for the potential reward of underwriting profit?
• What lines of business perform the best in your business? If historical loss ratios are low or nonexistent, excess and umbrella coverage can be a great place to start when considering a captive arrangement.
• In a fronted captive arrangement, additional limit comes with additional credit risk to the carrier. The carrier will require collateral to be posted in the form of cash or a letter of credit to mitigate this credit risk. Is your business prepared to tie up funds in order to secure excess coverage? 

Excess and umbrella coverage represent essential risk management components for organizations with significant or complex exposures. By leveraging captive insurance structures, businesses can deploy innovative, flexible, and cost-effective solutions—maximizing both control and premium retention, while safeguarding against catastrophic financial loss. Captive-driven excess and umbrella programs are among the most powerful tools available for sophisticated risk managers today. Captives Insure has the ability to provide a turn-key captive solution with AM Best Rated paper for Excess Liabiltiy & and Umbrella coverage. Allowing your business to participate in the risk and underwriting profit that before was absorbed by the commercial carrier in the standard market. Is an excess/umbrella captive right for your business? Reach out to C.I. today for a complimentary evaluation.