By Adrian Pellen, Co-Leader and Managing Director, Construction and Infrastructure Group and
Aaron Haimowitz, SVP, Construction and Infrastructure Claims Leader
In today’s complex and capital-intensive construction environment, traditional insurance models may face limitations — particularly when navigating unique project risks, rising costs or coverage gaps that standard market solutions may not fully address. Commercial insurance markets have responded with tighter underwriting requirements, higher retentions and rising premiums across key lines of business. As a result, forward-thinking entities in the construction sector are turning to cell captives as a modern, strategic risk transfer solution for construction projects.
Introduction: What Is a Cell Captive?
A cell captive is a specialized structure housed within a larger licensed insurance entity, or “core,” and is composed of multiple legally segregated cells. Each cell operates independently by maintaining its own assets, liabilities, underwriting activity and claims. This model allows owners, developers and contractors (hereinafter “organizations”) to access the core benefits of captive insurance, such as risk control, cost stability and claims transparency, without the significant capital investment or operational complexity of establishing a stand-alone captive.
The cell captive offers a powerful and efficient alternative for organizations seeking greater financial discipline, project-specific risk management and insulation from market volatility. Cell captives are particularly effective for projects involving multiple stakeholders whereby the exposure can be segregated to a specific cell on behalf of a joint venture. This allows for the benefits to flow to the joint venture specifically without tying into one of the members individual single-parent captives.
Strategic Considerations for Establishing a Cell Captive
For organizations seeking greater control over risk and insurance costs, a cell captive can offer significant strategic value. While not every organization may be an ideal candidate, those with the right combination of risk profile, financial strength and long-term vision can unlock meaningful benefits. Evaluating whether a cell captive is the right fit begins with three core considerations: construction risk management sophistication, financial readiness and strategic motivation.
Risk Management Sophistication
Organizations that are well suited for a cell captive typically demonstrate a strong risk profile and a high level of risk management sophistication. This includes having a well-established risk management culture, a capable finance and/or risk team, a consistent and predictable loss history and a desire for greater control over claims and data. These organizations are also open to exploring strategic alternatives to traditional risk transfer.
Financial Readiness
Financial strength is another critical factor. Ideal candidates tend to have a substantial annual insurance spend, access to capital and an interest in capturing underwriting profit. They are also willing to fund the initial capitalization of the captive and assume a degree of retained risk to achieve longer-term financial efficiencies.
Strategic Motivation
Many organizations are drawn to cell captives due to frustration with traditional insurance market pricing, limited capacity or restrictive coverage terms. They seek a long-term and cost-stable risk financing strategy, value the ability to customize coverage and have the capacity to leverage reinsurance or fronting relationships to maximize efficiency and flexibility.
In this environment, a cell captive offers a strategic alternative to enable organizations to access reinsurance markets directly, isolate project or business-unit risk, tailor coverage terms, customize claims protocols and retain underwriting profits that would otherwise go to the commercial markets. This structure empowers organizations to transform risk from a fixed cost into a controllable asset.
Cell captives are particularly effective for organizations seeking to centralize risk financing, reduce reliance on traditional insurers, control project-specific liabilities, or manage and consolidate high-deductible claims activity under one centralized risk financing vehicle. For those aiming to take a more proactive and financially disciplined approach to risk, a cell captive structure provides both operational flexibility and strategic advantage without the resource demands of establishing a stand-alone captive.
By integrating a cell captive into a broader risk framework, organizational leaders can transform insurance from a fixed expense into a strategic asset that safeguards not only the success of individual projects but also the resilience and profitability of the business itself.
Key Insurance Lines That Benefit from a Cell Captive Approach
An effective cell captive strategy enables organizations to assume greater control over claims and financial outcomes across high-impact insurance lines. Rather than relying solely on the commercial market, a captive creates a strategic risk financing platform tailored to the realities of complex construction projects.
- General Liability and Products-Completed Operations
General liability exposures pose long-tail financial risk and often involve prolonged litigation. These challenges are magnified in today’s legal environment, where settlements and verdicts continue to trend upward in both frequency and severity.
By retaining general liability risk through a cell captive, whether by funding high deductibles, self-insured retentions or first-dollar coverage, construction organizations can implement a more proactive and disciplined claims management strategy. This structure supports reserve allocation that aligns with internal financial objectives, enables deployment of in-house claims resources or trusted third party administrators, and allows for greater flexibility in selecting legal counsel and guiding defense strategies.
Captive retention of post-completion liabilities, including products-completed operations exposures, enhances the company’s ability to manage complex, long-duration claims more efficiently. The result is improved financial predictability, reduced claims leakage and decreased dependence on a commercial market increasingly shaped by volatility, rising premiums, shrinking capacity and unpredictable or restrictive underwriting terms.
- Professional Liability/Contractor’s Protective
Professional liability claims can expose organizations to substantial pecuniary loss and reputational risk, particularly those claims stemming from design errors, engineering or negligent project oversight. These exposures are especially pronounced in delivery models where responsibility for both design and execution are integrated, such as design-build or engineering, procurement and construction (EPC).
A cell captive offers a strategic solution by allowing organizations to retain a defined portion of professional liability exposure within a controlled and structured environment. This approach enables firms to create customized coverage that aligns with their project delivery approach, contractual obligations and broader risk management objectives. It also serves as a valuable alternative when traditional insurance markets have limited capacity or offer unfavorable pricing and terms. We have found that cell captives can be particularly useful for large civil projects where professional liability premiums have soared over the past several years.
In a practical scenario, if an organization faces allegations tied to flawed geotechnical recommendations or foundational design deficiencies, the captive can be used to cover early claim expenses, fund expert analysis and manage the overall claims strategy in alignment with internal risk protocols. This approach improves financial predictability, supports faster and more reputationally sensitive responses, and gives the organization greater influence over both the optics and outcomes.
- Builder’s Risk
Builder’s risk insurance is a core component of protecting construction projects from physical damage during the course of construction. However, many standard policies have begun reducing coverage for losses caused by defective workmanship, substandard materials and/or design errors. These exclusions can leave organizations exposed to potentially significant out-of-pocket costs unless the policy is specifically enhanced through endorsements.
By leveraging a cell captive, organizations can strategically address these coverage gaps through tailored solutions, such as deductible recovery layers or custom endorsements. This strategy enables firms to retain and fund targeted exposures that fall outside the scope of traditional policies, while maintaining alignment with broader risk financing goals.
Consider a project in which water intrusion occurs due to improper installation of the façade system. If the builder’s risk carrier denies or limits coverage based on workmanship exclusions, the captive can provide immediate funding for repairs and remediation. This reduces project delays, avoids costly disputes with insurers and ensures operational momentum is maintained while reinforcing greater control over risk management and claims resolution.
- Subcontractor Default Insurance (SDI)
Subcontractor performance risk remains a critical exposure for organizations, particularly on large, complex projects. While subcontractor default insurance is a common tool to address this risk, many programs are structured with high deductibles, co-insurance provisions, or substantial self-funded layers that can place considerable pressure on project budgets.
Given the increasing demand for project-specific SDI coverage, integrating SDI into a cell captive provides a strategic solution by allowing organizations to retain these exposures within a controlled and cost-effective structure. Beyond funding retained losses, a cell captive can be used to support advanced risk management strategies that use parametric or performance-based triggers. These might include subcontractor prequalification scores, financial health indicators or project milestone data that enable more proactive and predictive claims management.
This data-driven approach enhances decision-making, introduces greater financial predictability into default-related exposures, and allows organizations to respond quickly to performance issues without the delays associated with the traditional policy adjudication process. This creates financial efficiency, stronger subcontractor risk oversight and greater operational continuity.
Conclusion: A Foundation for Smarter Construction Claims Management
In an environment where entities in the construction industry face mounting pressure to control costs, manage complex project delivery and navigate an increasingly litigious landscape, cell captives present a sophisticated and agile risk management solution.
Cell captives go well beyond traditional financing mechanisms by enabling organizations to take strategic control of their claims process, enhancing oversight of resolution timelines, outcomes and fiscal impact, while reducing reliance on the limitations of the commercial insurance market. Critically, this model supports a long-term approach to reducing the total cost of risk by capturing underwriting profit, improving loss performance and driving greater accountability across the enterprise.
By integrating a cell captive into a broader risk framework, organizational leaders can transform insurance from a fixed expense into a strategic asset that safeguards not only the success of individual projects but also the resilience and profitability of the business itself.
To explore how a cell captive can provide your organization enhanced operational flexibility, greater control over claims and a long-term strategic advantage without the capital investment and administrative burden of a stand-alone captive, we invite you to connect with NFP's Construction and Infrastructure team.
