Warranty Coverage Case Study

Background:

The Company was founded in 1976. They are a wholesale and manufacturing company dealing with over 1,800 violin shops, music stores, and luthiers, mainly in North America. With their own brands, the Company has attained a reputation for honest value and excellence. They have 40 employees, all with one goal – to continue to provide the best service and finest products available!

They provide every instrument to the original purchaser with a warranty that it is free of defects with respect to materials or workmanship for a period of 5 years from the purchase date. With sales increasing, the owner’s risk has dramatically increased in recent years.

Analysis:

Risk Management Advisors recommended that the client form a captive insurance company, pay the premium to their own insurance company, and purchase additional coverage from the traditional market.

The focus of the owners and investors was to (1) insulate the business from periods of higher-than-expected losses, (2) reserve dollars for future claims, and (3) formalize their risk management program.

Solution:

A captive insurance company is established to insure the risks of its owner and affiliated companies. When properly structured, premiums are tax-deductible to the company and received tax-free by the captive insurance company. The captive insurance company serves as a more efficient method of self-insure. As the captive insurance company receives premiums every year, the increasing capital and surplus serve as an efficient pool of assets for any future losses.

The business had 8 years of detailed loss data to help analyze its exposure. Risk Management Advisors was tasked with implementing a captive insurance company and creating a warranty policy for each instrument sold by the insured. Historically, it was thought that only large companies could form a captive to provide warranties, guaranties, and service contracts. However, small and medium-sized companies can now effectively manage risk through a captive insurance company.

A captive insurance company can be a very unique and flexible tool. It affords the owner a better way to manage their risks and protect their wealth.

Practice Leader(s)

Captive Practice Leader, Managing Director

Max Jong

Captive Practice Leader, Managing Director

Max Jong is the Captive Practice Leader and Managing Director at Risk Management Advisors, an alternative risk and captive management firm. Max began his career at Northwestern Mutual in 1994 after graduating from UCLA. Over 12 years, he built a successful financial services practice while heading up an office overseeing 50 professionals in Los Angeles and Irvine, California. The office was perennially one of the top producing organizations in the Northwestern Mutual system.

Max joined his partners at Risk Management Advisors in 2007 as he began to work with more sophisticated mid-market business owners. RMA specializes in the design, formation, and management of captive insurance companies. There’s also an emphasis on self-funded group benefits as well as other creative alternative risk management strategies. The firm assists business owners in better managing their risks without jeopardizing their balance sheets. In 2019, he headed up a merger with Risk Strategies, a Top 10 private national specialty insurance brokerage and consulting firm. Since then, he was appointed as the Captive Practice Leader to oversee the growth and development of the organization.

For five years, Max served as an Independent Director for Fiat Lux Risk and Insurance Company, one of the largest and most sophisticated captive insurance companies. Fiat Lux was established by the University of California Regents to better manage the broad risks of the University of California system.

Max has also been a lifelong supporter of Big Brothers Big Sisters of Greater Los Angeles. He initially volunteered to be a mentor in 1995 and is currently mentoring his second "Little." Max was asked to join the Board of Directors in 2000 and eventually served as their Board Chair. After 20+ years as an active board member, he continues to support the organization by serving as a Trustee.

He is married to Alice, and they’re raising two young children, Hunter and Hayden. Max and Alice are happily married despite her irreparable mistake of going to USC. He loves to travel, golf, and is a hopeful Lakers fan.