“How do I know if my business qualifies for an alternative risk management funding structure?” “I don’t have time to create an insurance structure”. “We don’t have many claims, so there’s no reason to change insurance”. “My broker has never mentioned that I should look at my own insurance company”. “We looked at alternatives, but they were too expensive”. These are the comments we sometimes hear from new prospects. We, at Venture Captive Management (VCM) know that most people hate insurance, so we focus on the aspects of an alternative risk management funding structure that can make you money.
If your business is paying $250,000 for any single line of insurance and your current insurance company is spending less than 60% of your premium in losses, we can organize a captive insurance structure for you that will allow your business to retain the underwriting profit less administrative fees. Several factors affect this decision: the venue of domicile, the structure of the new insurance company, and risk transfer/risk distribution criteria. All of these components lead you to the criteria you should establish for your insurance company manager.
If you have time to gather information for your commercial renewal, you have time to consider an alternative risk management funding structure. If your current carrier is not paying significant dollars for losses, it’s time for you to capture that underwriting profit. If you broker hasn’t mentioned an alternative, it may be that your broker doesn’t know the possibilities. If the alternatives are too expensive, it may be because the alternative structure is requiring too much in fees or you may have been presented with a structure that didn’t fit your business risk.
How VCM Handles Alternative Risk Management
One of the managed services VCM provides is to determine which alternative risk funding vehicles is appropriate for your business. It could be a Risk Retention Group or it could be one of various forms of Captive Insurance. We don’t charge for an expensive feasibility study to determine if a risk retention group or a captive is the right decision for you. It’s a financial decision. If the numbers show you can make money with an alternative structure, then your decision is whether or not you trust your insurance manager to create and manage that structure for you. We walk you through that process in simple, easy-to-understand terms.
Risk Retention Groups
A risk retention group is a group of like businesses that come together to share their liability exposures. For example, health care providers may insure their professional liability exposure and developers might insure their environmental exposures. VCM helps bring these businesses together to create economies of scale to insure those hard to place liabilities that qualify under the Federal Risk Retention Act.
Captive insurance is an insurance company that insures its owners’ risks. This may be one or several owners, but the concept is the same. Business owners can take advantage of their excellent loss experience and keep the underwriting process.
What VCM Will Do for You
At VCM, we help you determine if a risk retention group or captive insurance is right for you. We:
- work with legal counsel to create the appropriate captive insurance structure
- create the application for approval of the company in the venue of domicile
- see that the company is a properly licensed captive insurance structure
- develop the policy forms
- work with contracted partners to determine the most effective premiums to protect the business’s financial risk
We work with your bank to:
- make the statutory deposit in the venue
- open your operating account
- open you claims account
Your insurance company is open for business!
Once premiums are paid to your risk retention group or captive, we:
- issue you insurance policies and certificates of insurance
- account for all the financial transactions
- coordinate activities with contracted claims administrators
- provide you with GAAP financial statements every month
- coordinate with licensed, approved auditors at year end
During tax season we:
- work with actuaries at year end to review adequacy of loss reserves
- work with licensed, approved accountants to calculate taxes
- arrange for tax payments as required
Once cash reserves reach an adequate amount, we coordinate investments with your investment advisor to keep your hard-earned money working as hard as you do.
On a regular basis, we ask that you review the operations of the company, review and advise on claims management, review financial statements, and direct the use of profits. It is our intention to be an extension of your management team. Your decisions should be the same kinds of decisions you would make with any of your other profit centers, not day-to-day decisions on running your insurance structure.