Setting Up a Captive Insurance Company in 2019

Setting up a captive insurance company offers a lot of financial benefits and tax advantages to your company, but the process can feel daunting if you’ve never done it before. Luckily, setting up a captive may be easier than you think. To help you prepare, here’s an overview of the steps involved.

setting up a captive insurance company

Do a Feasibility Study

Before setting up a captive insurance company, you need to make sure it’s the right choice for your situation. A feasibility study can help you assess that. With a feasibility study, you pay a third party to assess the benefits of a captive and how much work it is going to take. You may also need to do some actuary studies, but ideally, they should be completed in addition to a feasibility study. You shouldn’t just pick one.

 

Choose a Service Provider to Help With Setting Up a Captive Insurance Company

Typically, you need a service provider to help with the details so that you can focus on running your business. If possible, get quotes from a few different companies, but also get detailed information on their services so you know that you’re comparing apples to apples. Talk with each company extensively so that you get an accurate picture of what your future will be like together.

 

Select the Type of Captive Insurance Plan

Captive insurance plans fall into a few different categories. If you have a large company, you may want to choose a single-parent or a pure captive. However, if your business isn’t large enough to assume those costs and risks, you may want to opt for a sponsored or group captive where you form a captive along with other businesses in your industry or your local area.

 

Begin the Formation Process

Once you’ve selected the type of captive and the service provider, you can really get into the process of setting up a captive insurance company. During the formation process, you need to select a domicile that will ensure efficiency while also giving you the flexibility you need. Then, you need to pay formation fees which can vary drastically, and you need to make sure that you have the minimum required start-up capital which also varies based on your type of captive, ownership structure, the service provider you hire, and other details.

Then, you need to complete paperwork related to owner and director affidavits, biographies and disclosures as requested, reinsurance agreements, code of ethics, anti-money laundering affidavits, proof of residency, and any other required details.

 

Complete the Final Steps of Setting Up a Captive Insurance Company

Finally, there are a few final steps that you need to complete. You don’t necessarily need to take these steps on your own. Some service providers may complete them for you. This includes obtaining tax IDs, opening bank accounts, making deposits, creating purchase orders for your captive insurance plans, and handling the accounting for your plan. On top of that, you need to create operating and procedural manuals and educate your employees about the new plan.

 

To learn more about setting up a captive insurance company, contact us today. At Captive Insurance Management, we help businesses set up captive insurance plans that save money and safeguard success while minimizing risk.

Which Captive Insurance Structure is Right for You?

To be competitive as an employer, you need to offer your employees insurance, and in a lot of cases, you may even be legally required to provide insurance coverage to your workers. You may also need a range of other types of insurance products to protect your business from liability concerns as well as other issues.

You can buy into a traditional insurance plan, or you can take a different route and explore captive insurance structures. There are a few different types of options. Here’s a look at the most common captive insurance structures to help you identify what’s right for your business.

captive insurance structures

Single-Parent Captive

Sometimes referred to as a pure captive, single-parent captive insurance structures are when one organization forms a subsidiary to take care of its insurance needs. Typically, this option appeals to large companies that can pay millions of dollars into their insurance plan every year. The company gets the tax and investment benefits of those premiums, and it has a lot of flexibility because it doesn’t have to take into account the opinions of other parent members. However, the setup costs can be considerable.

 

Group Captives

Sometimes called a sponsored captive, a group captive has multiple parent organizations. Generally, this option involves a number of unrelated businesses coming together to form a captive insurance plan. If your business isn’t large enough to support single-parent captive insurance structures, you may want to consider a group captive.

Generally, companies that choose this arrangement pay about $400,000 to $1.5 million in annual premiums, but that’s just a sample range and the numbers can vary. Because you have to meet the needs of all the members in your collective, group captives don’t offer you the same degree of flexibility as single-parent captives, but as a trade-off, they are less involved and more affordable to set up.

 

Association and Industry Captive Insurance Structures

An association captive is a type of group captive. However, these businesses are not unrelated. Generally, they are part of an association. For example, the downtown business association in a community may decide to work together to start an association captive. Industry captives are similar, but all the companies are in the same industry. When companies from the same industry work together, they can pool their resources to find insurance plans that may be hard for organizations in their industry to get.

 

Rent-a-Captive

A rent-a-captive structure allows businesses or other organizations to try out the benefits of captive insurance structures without making a major time or financial investment. Essentially, you access an existing captive, but you may also need to obtain reinsurance and provide collateral to prove that you aren’t going to create financial risk for the captive. Then, if everything goes well, you can move toward the more traditional captive insurance structures mentioned above.

 

Captive insurance structures offer unique and compelling benefits for businesses, professional associations, industry groups, and other organizations. To learn more and to talk about which options are the best for you, contact us today. At Venture Captive, we have the tools and experience you need.

Risk Management/Loss Control in Assisted Living Centers

Ways to Mitigate Risk to Reduce Loss

With the aging population, assisted living centers are becoming more and more in demand, representing an excellent business opportunity. However, the nature of this business has some inherent risks that require foresight and planning to execute risk management and loss control.

Assisted living centers need comprehensive insurance and risk management programs in addition to thoughtful policies and procedures. Caregiving is an essential, valuable service but does indeed come with some particular vulnerabilities, which is why risk management and loss control are so helpful for business viability.

Here are some of the most common risks and potential loss areas in assisted living centers and suggestions on how to proceed.risk management loss control

Slips and Falls

No question, injuries from slips and falls are common potential legal issues for any sort of business or service provider. However, given the frailty of the common resident of an assisted living center, this problem carries more weight.

Reduce the likelihood of slips and falls by ensuring that carpeting is flush to the floor and that there are no slipping or tripping hazards. Take care not to leave hard flooring wet and use signage to warn people. Make sure that there is adequate lighting to illuminate any potential hazards. Inspect equipment regularly, like shower seats, raised toilet seats, and grab bars. Small steps can help a great deal with risk management and loss control.

Issues Around Care

Another legal issue that arises commonly is the improper administration of medication or problems with medical care. To avoid this from happening, ensure that staff are fully trained and certified to administer medication/medical care. Document procedures and conversations between medical care staff, family members and the resident.

Avoid problems with residents/patients wandering by having the proper measures in place: security guards, surveillance cameras, and secure doors and windows. Screen patients upon admission to evaluate potential risks with individuals and assign different protocols depending on the perceived risk.

It is also helpful to have adequate staff on hand to minimize the risk in these areas. Having adequate staff can help in the event of an illness outbreak, in order to contain it.

Resident Abuse

Unfortunately, resident abuse is something that does happen against this vulnerable population. To minimize this risk, ensure that staff are properly screened and have the necessary background checks and security clearance. Have staff work in teams of two or more so that all staff interactions are supervised.

Emergency Response

Despite all the planning in the world, accidents and emergencies do happen. Make sure that you have well laid out and documented procedures in the face of emergencies like fire, flood, or natural disasters. That should incorporate both procedural direction and staff training in emergency response, and it should be reviewed on a regular basis.

Your best risk management and loss control plan is to try to identify problems before they occur. To find out more, contact us.

Your Guide to 831(b) Captives

In 1986, the Internal Revenue Service (IRS) added 831(b) captives to the Internal Revenue Code for the purpose of creating a more uniform tax code for mutual and stock property casualty insurance companies. Prior to the enactment of this Internal Revenue Code, three layers of taxation existed for insurance companies depending on the amount of annual gross receipts. However, this did not include property and casualty insurance providers.

831(b) captives

Potential Abuses of 831(b) Captives

This IRS legislation subjected small insurance companies not offering life insurance to premium limitation amounts as well as an alternative tax amount based on only the taxable portion of investment income. By using this alternative tax structure, an insurance company does not need to pay federal income tax on underwriting profits. Unfortunately, some insurance companies not eligible to pay taxes under the 831(b) captives structure committed fraudulent acts to help the company qualify for it. Some also engaged in cybercrimes for the same reason,

The IRS tends to look suspiciously on an insurance company that files few or no claims during a year. However, this is more often a sign of a business run well than a company trying to take advantage of tax codes it does not qualify for to lower its own federal tax liability. Venture Capital feels that a business should receive financial rewards if it is able to manage its captives well.

Anti-Abuse Measures Passed by Congress

Because some business chose to commit fraud to qualify for 831(b) captives, the federal government has started to crack down on the types of business that can legitimately claim it. For taxable years occurring after December 31, 2016, companies claiming this tax structure must meet each of the following criteria:

  • Operate as an insurance company
  • Receive no more than $2.2 million dollars in the course of a year in net premiums
  • Meet the diversification requirements we describe below
  • Have or make a current election to pay taxes through the section 831(b) tax code

Diversification Requirements

Congress added diversification requirements as part of its anti-abuse measures to address the evasion of gift taxes and estate taxes. To meet this requirement, an insurance company cannot receive more than 20 percent of its net annual written premiums or direct written premiums if that amount is greater from a single client. The law treats all policyholders related by blood or who are members of a single controlled group as one policyholder when applying the 20 percent rule.

The ownership test is another diversification requirement under 831(b) captives. This rule states that ownership of an insurance company by special holders under 831(b) cannot be more than two percent greater than the company’s insured assets or typical ownership. Special holders include spouses or direct descendant of a person who holds a direct or indirect interest in the items covered by an insurance policy.

Several Other New Laws Pertain to 831(b) Captives

The above represent just some of the changes Congress has made in the qualification and reporting of income under this tax structure. Although it can get very complex, IRS law does not allow you to use ignorance as a reason for not abiding by tax laws. We encourage you to schedule an appointment with Venture Captive today to learn more about how these changes affect you.

How Captive Management Can Help Your Business

Insuring your business can be tricky, and captive insurance offers some unique benefits. However, if you decide to foray into the world of captive insurance, you should consider working with a captive management company. Here are a few ways captive insurance management services can help your business.

captive management

You Reap Financial Benefits

Normally, when you buy insurance, you pay premiums, and although you get peace of mind and coverage if you need to make a claim, you don’t earn any money from the insurance policy itself. With a captive insurance plan, you pay in the premiums, they earn money, and if you never make a claim, you can reclaim those funds. For this reason and many others, 90% of Fortune 1000 companies opt to use captive insurance.

 

You Enjoy Tax Benefits

You can claim a tax deduction on the premiums you pay to captive insurance companies. The captive insurance company doesn’t have to pay any income tax on the premiums it receives up to a certain threshold bold, and eventually, if you withdraw funds from the captive plan, you get to enjoy a relatively low long term capital gains rate. A captive management company can work with you to ensure that you get as many tax benefits as possible.

 

You Get Help With Tax Issues

Unfortunately, there have been a few cases where the Internal Revenue Service (IRS) has rejected claims related to captive insurance companies. When you work with a captive management company, they set up your plan to ensure that you can reap the tax benefits and avoid any issues with the IRS.

 

You Can Customize the Policy to Meet Your Needs

When you work with a captive management firm, they can help you customize the policy to meet your unique business needs. That is often more effective than choosing a prepackaged insurance plan.

 

You Get Coverage for Nearly Anything

Additionally, if you are struggling to get insurance through the traditional market, a captive insurance plan can help you get coverage which you normally may not be able to obtain. In particular, you can develop a plan that offers coverage for some of the following elements:

  • Returning defective inventory
  • Covering the cost of deductibles on existing coverage in the event of a financial issue
  • Reducing risks due to exposure to underinsured entities
  • Customer concentration risk
  • Safety concerns
  • Environmental liability
  • Malpractice
  • Product liability
  • Loss of employees
  • And more

You Get the Support You Need

When you work with a captive management company that can provide you with turnkey services, you get to reduce your risk and enjoy all the benefits of captive insurance, but you don’t have to manually manage the insurance company’s day to day business. Instead, you work with the management firm to develop something that meets your needs, but they handle the specifics for you.

 

To learn more about captive insurance, contact us today. At Venture Captive Management, we have the experience, knowledge, and guidance you need. We can help you minimize risk and get the insurance you need.

How Are Captive Insurance Companies Taxed?

With captive insurance, a business or a group of businesses essentially creates its own insurance company. This option generally exists in contrast to buying insurance from a provider or opting for self insurance. There are numerous advantages to captive insurance, but before taking the leap with your organization, you may want to look at some of the tax implications.

captive insurance

Tax Deduction for Insurance Premiums

Normally, when you buy insurance, you can claim a deduction for the cost of your premiums just as you do for almost any other business expense. That rule also applies to captive insurance policies — even though you basically own the insurance company, you can still claim a deduction for the cost of premiums.

 

Liquidated Funds Are Long-Term Capital Gains

With a traditional insurance policy, you pay the premiums, but you never get any money back unless you make a claim. With captive insurance, your premiums go into the fund, and if you don’t need them, they stay in the fund, growing over time. Eventually, you can liquidate the fund, and when you take the money, you don’t have to pay income tax. Instead, the funds are considered to be a long-term capital gain and you face capital gains tax which is significantly lower than most income tax.

 

Internal Revenue Service Concerns

Unfortunately, in a few cases, the Internal Revenue Service (IRS) has rejected some tax claims related to their captive insurance plans. In cases involving Securitas Holdings, Rent-A-Center, and other entities, the taxpayer has gone to tax court to prove the legitimacy of the captive insurance company. In most cases, the tax court upheld the taxpayer’s right to use captive insurance companies and to reap any associated tax benefits.

However, the main issue that comes up in these cases is the legitimacy of the captive insurer and its relationship to the parent company. To ensure you don’t face any tax hurdles like that, you should consider consulting with a professional accountant, but you should also work with an experienced company who can help you set up your captive insurance plan.

 

Lower Tax Rates

The captive insurance company also experiences tax benefits. As of 2018, small captive insurance companies that receive annual insurance benefits of less than $2.3 million are taxed at 0% on their underwriting profits. Their investment income faces a 21% corporate tax rate — the Tax Cuts and Jobs Act lowered this rate, as previously it was up to 35%.

In some cases, profits from captive insurance companies can also benefit from the pass-through deduction. Although the specifics of the pass-through deduction are complicated, the main idea is that if you own a business when you have to report the profits as personal income, you may be able to claim up to a 20% deduction on those profits. However, this amount varies based on the type of industry, and there are income-related caps. For specifics, you need to consult with an accountant.

 

If you’re ready to enjoy the benefits of a captive insurance company, if you’re looking for ways to lower your insurance premiums, or if you just have questions, contact us today. At Venture Captive Management, we can guide you through the process.

How Risk Retention Groups Help Assisted Living Centers

Running an assisted living center undoubtedly comes with risks of all sorts. In that case, protection is vital to protect your business from substantial loss. If liability insurance is eating away at your cash flow, you may be exploring the possibility of some form of self-insurance. Risk retention groups are a way to up your liability protection without boosting your costs.

risk retention groups

Risk Retention Groups at a Glance

The groups are specifically for insuring businesses and must form as liability insurance companies. One state serves as the domicile, but other states can participate in the group. This is an easier process than traditional insurance companies without the need for individual licensing or contribution to guaranty funds.

By setting up a risk retention group or joining an existing one, assisted living center owners pool together resources to make a powerful impact.

Benefits of Risk Retention Groups for Assisted Living Facilities

Instead of competing with similar businesses, owners will find it refreshing to join a group where like companies help each other. Combining resources, skills, and expertise helps the industry as a whole. It improves the success rate and business performance. The group setup and combining funds naturally helps offset high premium costs.

The captive status opens more doors for options and customized insurance solutions. The setup makes way for self insurance where you can reserve funds and handle risk on a case-by-case basis instead of filing claims each time and raising premium costs. As a contributor, you also reap the benefits from your share of underwriting costs and surplus.

Strength in Numbers

As an assisted living facility owner, you can rest assured your group is in it for the long haul. RRGs continue to be a strong driving force in the commercial liability insurance industry. Figures from the NAIC suggest that in recent years they accounted for a total of 238 groups and are growing. RRGs are an optimal solution for medical facilities as costs continue to rise.

Financials have remained consistent in growth throughout any changes, with the largest groups maintaining $722 million of premium. You will also find peace of mind in knowing the National Risk Retention Association provides support to RRG owners and insureds. The non-profit 501 (c)(6) organization handles legal and legislative matters to improve the quality of your experience within an RRG.

Medical Malpractice Coverage

The healthcare industry is one of the largest industries to join forces with risk retention groups. Of the commercial policies groups write, malpractice insurance accounts for the highest number. When you are dealing with delicate loved ones, it is almost inevitable for lawsuits to surface at some point. With rates that are normally high outside of a group setting, assisted living centers could free up cashflow by joining an RRG.

How Venture Captive Management Can Help

We have a track record of success working with countless companies in our risk retention group that we first established in Washington, D.C. Our multi-talented team has the skills to incorporate state and industry standards into your strategy. Place the task of setting up alternative risk funding in our hands, and focus on taking care your clients. Contact us today to get started.

What is Risk Retention?

Every successful risk management strategy should include insurance. The first thought is to incorporate traditional insurance in your plans, but not every business benefits from it. If more companies took a look into risk retention and its benefits, they would understand why it may be a more logical part of their business process.

risk retention

Risk Retention Explained

Different companies have different risks depending on the industry. Some have one detrimental risk or several high level risks. For instance, a hospital would have more risk—and more in depth risk— than a retail store. When a business decides to take charge and assume their own risk, they also choose not to place that burden on an outside insurance company.

How it Works

Assuming your own risk could include paying a deductible, building a reserve or escrow account, risk prevention, or self insurance. Without making a transaction with an outside insurance company, businesses plan for the unexpected by making sure funds are in place to fully or partially cover losses from monetary claims.

With risk retention programs, you have the luxury of more control over customizing insurance products to meet your needs. This solves the problem of no access to liability insurance for your industry due to rising costs or elimination within the market. Legislation allows these programs to adapt regular insurance laws or captive laws for that particular state.

Liability insurance products that fall under the RR category are:

•   medical malpractice
•   errors and omissions (E&O)
•   professional liability
•   product liability

Benefits of Risk Retention for Your Business

A wide range of benefits stem from this process. Businesses could have ownership in the company. Companies of the same industry can collaborate to form their own insurance company versus paying someone else. Shifting that risk will encourage the organization to see the importance of loss prevention and be more proactive.

They could also save money on the cost of premiums. Traditional insurance companies base insurance premiums on the cost of risks that could occur far in the future. This process reduces the price by using costs of common risks nearer in the future. Saving money with risk prevention will cut expenses on your overall bottom line, which will take pressure off your cash flow.

The Importance of Risk Retention

The most significant reason to practice risk retention is to protect your company and its assets. Minimizing risk however possible protects company finances, branding, and reputation.

For instance, a hospital uses desktops, laptops, and other mobile devices to care for patients daily. They know eventually these products will suffer wear and tear or employees may misplace them. At that point, they have to weigh out the costs of filing a claim to replace these devices versus having a company fund for incidentals. There is also the issue of compromising company data when losing some devices. The hospital will need to carefully decide which method of risk retention will best protect the business and its patients.

Why Contact Venture Captive?

The goal of risk retention is to do what is best for everyone involved in your company. That requires careful planning and decision making. Setting up a risk retention group or joining an existing one has steps that rely on state regulations.

We are there to help you sort out options to minimize risk without draining your budget. Our expertise and proven success will bring you peace of mind as you take this important step. Contact us today to get started.

Risk Retention for Assisted Living

Traditional insurance policies are not appropriate for every situation, and one of the many alternatives is a risk retention group. Essentially, risk retention groups are insurance companies established by a group of businesses or other entities in the same industry, and their role is to provide liability coverage for the owners or institutions involved in the policy. This structure is particularly appealing to assisted living centers. Take a look at the details.

risk retention group assisted living

Benefits of Risk Retention Groups

With a traditional insurance policy, an assisted living center or any other person or entity pays premiums to the insurance company. Then, based on the stipulations in the policy, the insurance company steps in when major losses occur, and typically the insurer covers smaller losses either by covering the deductible or not making a claim. Through this process, the insurance company may earn profits or losses.

In contrast, with risk retention groups, the risk is retained by the insured. In other words, the insured may suffer losses, but at the same time, they can also keep their profits. In light of that, these policies offer the following advantages for nursing homes and assisted living facilities:

  • The chance to retain profits
  • Lower premiums or contribution rates
  • Broader coverage that covers a wider variety of losses than traditional insurance coverage
  • The ability to shape the policy so it meets the unique risks faced by assisted living facilities
  • Loss control and risk management programs
  • Access to reinsurance markets

Additionally, because numerous professionals and entities come together on these policies, they share interests and they can help each other’s operations.

 

Why Premiums Are Lower

When you opt to participate in a risk retention group, the premiums are lower for a number of reasons. However, the main reason is related to how far these policies look into the future. Generally, traditional insurers look at the potential claims that you are going to make throughout the lifetime of the policy. Then, the insurer tries to recapture those amounts through the insurance premiums it sets. As a result, you may be paying for a potential nursing home negligence claim that may or may not take place far into the future.

On the other hand, a risk retention policy also estimates potential claims over the next 12 months and premiums are calculated based on that. Additionally, risk retention groups don’t have the overhead of traditional insurers. Because you essentially own the insurance company, that also cuts down on your contribution.

 

Risk Retention Vs. Self Insurance

Risk retention may sound slightly like self-insurance, but it is a completely different entity. It is also a much easier process to manage than wading into the complex world of reinsurance. At Venture Captive, we offer a variety of insurance programs and setups. We help our clients choose the right option for their needs, and we guide them through the process.

 

To learn more about risk retention groups, contact us today. At Venture Captive, we offer risk retention, captive insurance programs, financial programs, risk management loss control, and other essentials.