So You Hate Insurance – What Are You Going To Do About It?

There is nothing like that powerless feeling one gets when one’s insurance rates go up, even when there have been no claims and nothing has gone wrong. We work across the U.S., serving mid-market businesses. I routinely meet business owners and CFOs who hate insurance. In fact, since “Insurance” is the middle initial in our name, it’s often an impediment to our first meeting.

Why Do Business Leaders Tell Us They Hate Insurance?

It is difficult to provide an exhaustive list, but some of the most common reasons are as follows:

The Sinking Feeling Of Sunk Costs – this sensation occurs when a business owner or CFO realizes that insurance premiums paid are gone forever and can only be recovered by a claim. However, the business most certainly does NOT want a claim because that would mean something bad has happened. And, it would also mean their rates will probably go up.

The Thought You Were A Champ But You’re A Chump Nightmare – this occurs when the business has a loss, and the insurance company does not pay the claim because the circumstances of the loss are excluded in the insurance policy.

The Dropped Like A Bad Habit Effect – this unsettling condition occurs when the business has claims, is dropped by their insurance carrier and bounces around looking for a new insurer.

Run-Away Premiums – this condition is often – but not always – related to the Hot Potato Effect. It occurs when insurance premium levels rise, impacting budget forecasting and profits.

Expense Center Blues – this occurs when insurance and risk management are simply a cost center to the business.

The result is that insurance is often a “grudge purchase.” It’s simply a cost to be born and certainly is not as energizing as crafting strategies to grow the business.

Hope Over Hate

The is hope for businesses, and it can be found in owning an insurance company, specifically, a captive insurance company. This unique strategy enables business owners to improve risk management, reap insurance company profits and benefit from insurance company taxation.

Owning a captive insurance company enables business owners to make a massive paradigm shift from viewing risk management as a cost center to viewing risk management as a profit center. Some highlights include:

1. A captive insurance company can replace commercial insurance.
2. A captive insurance company can insure a warranty program.
3. A captive insurance company can issue performance bonds.
4. A captive insurance company can form the chassis for an Enterprise Risk Management (ERM) program for small and mid-market companies.
5. A captive insurance company can issue policies with fewer exclusions.
6. A captive insurance company doesn’t automatically hike up rates due to claims.
7. A captive insurance company doesn’t automatically hike up rates due to market trends.
8. The profits of captive insurance companies belong to the business owner(s).
9. Small captive insurance companies can make an 831(b) tax election and be taxed at a rate of zero percent (0%) on underwriting profit. “Small” is defined as receiving premiums of $2.2 million or less.

Don’t Just Hate It – Do Something About

Captives give business owners and CFOs better control of their risk management. A captive is a real insurance company, and it is licensed to insure related entities. Captives can help business owners avoid sunk costs because underwriting profits are the property of the owner not a commercial insurance carrier.

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