Captives can reduce risk that is there whether you insure it or not as well as create a profit center.
Risk management with captive insurance transfers risk of a business to an insurance company the insured owns. If the same risk were transferred to a commercial insurance company, the profits generated by favorable loss history would go to the 3rd party insurer’s bottom line. Captive insurance can be written in place of certain commercial policies with similar favorable losses, and that is why Captives can make risk management profitable.
Products and services that make managing your risk profitable.
Risk Assessment includes the combining efforts of:
- 1. Identifying and analyzing potential (future) events that may negatively impact individuals, assets, and/or the environment (i.e. risk analysis)
- 2. Making judgements “on the tolerability of the basis of a risk analysis” while considering influencing factors (i.e. risk evaluation)
In layman’s terms, risk assessment identifies areas where potential mishaps are likely to occur, the consequences of said mishaps and the level of risk tolerance for identified mishaps. Resulting data regarding mishaps should be both qualified and quantified.
Risk Assessment provides crucial data which is part of a company’s overall risk management process.
Captive insurance enables a business to form an insurance company to insure its’ own unique risks.
Captive insurance enables an operating business to form an insurance company to insure its’ own risk. There are many benefits to owning an insurance company, such as:
• Covering exclusions that are in commercial policies
• Better risk awareness
• Creating a profit center
• Enhanced management of risk
• Tax benefits
Featured Solution
Our expert captive management team has decades of combined captive experience. Thus, our captive owners confidently enjoy lower risk, creating a profit center and potential tax benefits.
Captive Formation and Management
Most businesses seeking a captive solution engage the services of a captive manager. There are many skilled captive managers available. Clear communication from a Captive Manager should be understandable to non-insurance professionals, free of insurance jargon and come with expectations for response. Comprehensive due diligence prior to hiring a captive manager is crucial. This process sets the stage for the success of a business owner’s insurance company. It is imperative that there is good business chemistry before starting the captive voyage.
The process of choosing a captive manager should start with the same fundamentals needed in any business partner. Questions such as:
- How experienced is the captive manager?
- What awards has the captive manager won?
- If the Captive Manager (CM) offers other non-captive services, what percent of their time is spent managing captives?
- Which professionals needed to run insurance companies are on the manager’s team?
- Does the captive manager use 3rd party professionals for annual audits?
- What were the results when a manager’s captive client had an IRS audit?
- What exit strategies does the CM use when a captive is no longer needed?
Now that the captive manager selection process is completed, it is time conduct a feasibility study. Actuaries conduct the study which identifies and measures risk of a business. Claims history from commercial insurance policies is used, as past claims can be an indication of future claims. If a business has a series of similar, ongoing claims, a captive is probably not a good business solution.
There are many steps in risk assessment. Below is an example.
- Step 1 Retain a Captive Manager after careful due diligence
- Step 2 Conduct Feasibility Study
- Step 3 Determine which Captive Structure will best meet a business’s needs
- Step 4 Domicile Selection
- Step 5 Prepare and submit Captive Application to selected domicile
Most businesses interested in Captives have better than average losses, which means the 3rd party insurance company made a significant profit on those policies. Domicile refers to jurisdiction which can be a state in the US, which is considered onshore or offshore which is a jurisdiction offshore. Consider the department of insurance the boss of the captive and certain jurisdictions are more friendly to captives than others. Finally, the captive manager prepares and submits captive insurance applications to the Department of Insurance for the domicile.
Captive management refers to the day-to-day operations which include:
- Regulatory
- Tax filings
- Underwriting
- Claims processing
- Compliance
Underwriting, compliance, claims processing, along with regulatory and tax changes. Suites of services offered by captive managers can be extensive and designed to encompass all services, while others offer an ala carte menu. Since Captive Managers serve as the Captain of the captive ship, it is important to find the right one.
Expert captive insurance managers provide a seasoned team of captive professionals that provide back-office support for existing captives which includes Actuaries, CPAs, Attorneys, Account Managers and more. Back-office tasks such as staying in compliance, maintaining insurance department filings, creating claims processing procedures and many accounting tasks can be out-sourced to a Captive Manager.
Captive management starts with experienced, expert captive professionals. This team eliminates most headaches many captive owners endure. Engaging a captive manager for back-office support of an existing captive means there are no delays as a result of an illness, family emergency, holiday or vacation. When captive owners choose back-office management from a captive manager, there are multiple professionals who can take care of needs, now.
MSI Captives Frequently Asked Questions
Remember when policies are priced, claims are factored into policy pricing as insurance companies know they will have claims, captives are no different as they are licensed insurance companies.
It is recommended as a captive manager will have the experience in making sure that the captive has all the qualified service providers needed whether in-house or outsourced to keep the captive in good standing with all applicable regulatory and compliance needed.
This comes down to being in the right structure based on your business size. Captives have different structures based on what the business is seeking from a captive, that is why businesses gross 1 million or more in annual revenues per year can participate in a
captive solution where the benefits exceed the cost.
Let Us Help You!
For over a decade, Risk Management Made Profitable and Management Services International (MSI) have provided alternative risk solutions, as well as formation and management services to wide range of companies in various industries. We certainly understand that you face a lot of risk as a business owner or risk management professional and that there are exposures and risks that can’t be covered with traditional insurance.
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