April 20, 2020

Why Form a Captive Insurance Company?

5 min read

R. Wesley Sierk, III ; Managing Director, Risk Management Advisors

Business owners, entrepreneurs, and stewards of large organizations always look for effective ways to cut costs while improving performance. Enterprise risk management is one aspect of an organization that accounts for a large portion of the expenses. Therefore, companies should seek uniquely designed solutions for enterprise risk.

Understanding Enterprise Risk Management Through Captives

We advise our clients to transfer risk by creating captive insurance structures to mitigate risk in commercial activities. Apart from reducing how much is paid as insurance expenses, captive insurance arrangements are typically deductible, meaning organizations can access larger annual deductibles.

It is common for small firms or even individuals to wonder why the cost structure of a large corporation is usually less than what should have been obtainable. This is because innovative firms now use private insurance solutions created by their captive management partners like us. They enjoy the advantages of strategic risk management solutions while improving their performance.

Any organization that has tested captives' private insurance program management will not return to conventional insurance coverage.

The Business Case for Captive Insurance

When your organization has a captive insurance structure, it has its own insurance company that handles its risk management. An organization that keys into owning its insurance vehicle tends to save up on agent commissions, marketing, ads, and so on. These could translate to massive savings, which can be used by the organization that owns the captive structure. Apart from that, owning a captive insurance platform means that you can protect your company from paying a lot to have access to coverage for those risks that are considered expensive by conventional insurance firms.

Another reason many companies are embracing this structure is that they are unable to get unique coverage for some types of risks from conventional insurance companies. Owning a captive structure is a win‐win for any company that knows its onions. The company must partner with astute captive management partners like us to customize solutions for its risk needs.

Core Financial Benefits

The parent company will have access to tax deductibles on the insurance premium that was given to the captive structure. The organization will have access to a lot of tax savings benefits. The parent and the captive will have access to income tax savings, which many organizations crave.

Apart from that, the shareholders can embrace the benefits of gift and estate tax savings. The organization will be given the leeway to garner wealth by using a captive. For those organizations that want to protect their assets, the captive may be the right for them. We advise our clients to use the captive system because distributions can be given to them at favorable income tax rates. Every company wants to have its assets protected against claims from personal or business creditors. When a company uses our help to create a captive structure designed for itself, it can gain this.

Strategic Advantages of Captive Structures

An organization that uses a captive structure tends to pay far lower premiums than its counterparts that do not. When our clients use a captive structure, they can benefit from the reinsurance market that costs next to nothing. Some organizations are unable to get proper insurance coverage for some risks. The captive structure offers them. The organization has access to underwriting flexibility. When a captive structure is opened, marketing costs, advertising costs, overheads, and other costs are saved as underwriting profits. The organization that owns the captive structure can then use these profits. The organization will have access to increased coverage.

Asset Protection and Wealth Building

The truth is that many traditional insurers do not offer the specialized and intense coverage that some companies need. The coverage that they may offer may scratch the surface at best. A captive structure will give your company better coverage than conventional insurers. Our feasibility analyst team will look at your business structure and seek the proper captive structure for your organization. Your organization can make purchases based on need. Instead of taking out unnecessary conventional insurance coverage for one reason or another, a captive structure allows companies to use only what they need. Utilizing a captive insurance structure means organizations can examine their risk exposures. They can find out what is making them lose money. It is then easier for them to adopt better risk management techniques.

Implementation Considerations

Different organizations may need a captive structure for one reason or the other, but the various reasons usually boil down to one. They want to clamp down on their cost centers. We can help your organization create the proper captive structure based on its needs.

Want to find out if a captive insurance company is the right fit for your business?

Take the assessment to learn more:

https://www.riskmgmtadvisors.com/captive-insurance-fit-assessment

The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.

R. Wesley Sierk, III ; Managing Director, Risk Management Advisors

Wesley Sierk is a recognized authority in the realm of captive insurance company design and management. As Managing Director and Lead Strategist for Risk Management Advisors, Inc., he possesses an unmatched track record that spans nearly 30 years, with a focus on empowering profitable, closely held businesses. Wesley's expertise isn't just limited to consultation; he's profoundly adept at strategic implementation. He has partnered with leading homebuilders, real estate developers, manufacturing enterprises, and professionals in sports and entertainment, providing them with unparalleled insights and solutions. A hallmark of Wesley's career has been his unwavering commitment to his education. He holds esteemed designations like the Chartered Financial Consultant (ChFC) and Chartered Life Underwriter, both awarded by the American College since 1996. Further amplifying his credentials is the CRIS (Construction Risk and Insurance Specialist) recognition, secured in 2006. Notably, he's among the rare individuals globally to have earned the Associate in Captive Insurance (ACI) designation, a testament to his profound understanding of the subject. Beyond his direct work with clients, Wesley takes immense pride in working hand-in-hand with other professionals, including CPAs, Attorneys, and Financial Advisors. This collaborative approach ensures thorough due diligence and optimal plan design implementation. An accomplished author, Wesley has penned critical works like Taken Captive: The Secret to Capturing Your Piece of America's Multi-Billion Dollar Insurance Industry and You Can Make It, But Can You Keep It?. The latter serves as a guiding light for the affluent, teaching them strategies to preserve their hard-earned assets. In the realm of speaking engagements, Wesley is a coveted name. Whether it's insurance industry gatherings or legal and accounting symposiums, he's regularly called upon to demystify the intricate dance between traditional insurance markets and the potential of captive insurance entities. Under Wesley's leadership, Risk Management Advisors remains a beacon of innovation, committed to elevating clients' financial well-being and mitigating risks in an ever-evolving landscape. He is married to Leslie and has two 'not so young' children. Their son is attending the University of Tennessee studying entrepreneurship and risk management. While their daughter finishes up her high school years. They love to travel, golf, cook and hike with their two huge dogs.