Although they are established as insurance companies, they are more properly viewed as self-insurance mechanisms. Risk retention groups, group captives and risk sharing pools are simply cooperative risk funding vehicles designed to write insurance to cover risks. They maybe formed to reduce insurance costs within a specific group of participants, increase limits of coverage and secure more favourable terms of coverage, or to spread the risk as compared to going without insurance entirely.

Pools are developed by group captives and self insureds that wish to transfer some of the risk they have agreed to assume. Pooling arrangements frequently occur when group captives cannot find adequate reinsurance or the cost of such reinsurance is excessively high relative to the risk. Thus, participants in a risk retention group, group captive or pool should understand that they are participating in self-insurance. Viewing the captive or pool in this manner is important for two reasons:

Paying for Loss - With the exception of reinsurance for potential catastrophic losses, the group will pay for virtually all of its own losses.

Pooling the Risk - Experience indicates that the "average premium" theories that underline traditional insurance industry thinking are valid only if good risks are willing to stay in the pool with the bad risks.

These are captive insurance companies formed by brokers or agents to provide coverage for their insured. These types of captives increase the probability that brokers will have a market into which to place their insured and therefore may allow them to offer broader levels of coverage than that offered by risk retention groups or group captives.

A highly specialized form of captive operation. These companies are designed for firms that do not want to own a captive but want to obtain some of its advantages. A rent-a-captive is formed by investors and is operated as an income producing business. An insured pays a premium and usually pays a deposit or posts a letter of credit to back up its business. The operators of rent-a-captives handled the operations and claims for the insured and place the reinsurance. .At the end of the policy period the insured is paid a dividend based on incurred losses, operating expenses, and cost of reinsurance.