Food & Beverage Distributor Case Study
Companies in the food and beverage industry have historically operated in a fairly complex business and regulatory environment. In order to be viable, they manage a sophisticated supply chain while maintaining product integrity. Given the consumer nature, they’re operating under some onerous regulatory requirements. Traditional commercial insurance policies oftentimes do not cover all the nuances of their businesses. More times than not, the carriers earn a healthy profit on their policy since claims are few and far between.
Some of the unique risks in the food and beverage industry are product tampering, product recall and food rejection. In the event the USDA determines that a product is tainted, the distributor not only is without the product they have to deliver but they now have to pay for the product again to satisfy the contract. Expenses related to product recall and product tampering can potentially be significant. However, for companies that have a strong track record and processes, it may be more beneficial to self insure this risk.
A captive insurance company is an entity that 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. The captive serves as a more efficient method to self insure. As the captive receives premiums every year, the increasing capital and surplus serves as an efficient pool of assets for any future losses.
Food and beverage companies can have their captives write policies unique to their businesses. Not only are they able to manuscript policies that have fewer exclusions, all the underwriting profit that would have gone to a third party commercial carrier is now theirs to keep.
A captive insurance company is be a very unique and flexible tool. It afforded the owner a better way to manage their risks and protect their wealth.