A recent article in Financial Planning reminded me of the remarkable role captive insurance companies can play in asset protection and generational wealth transfer. To read the entire article in Financial Planning, CLICK HERE. The Supreme Court recently passed down a ruling that “signals change for any client planning to pass along an IRA to heirs
These are exciting times for the captive insurance industry, and a recent announcement by the State of Montana builds on the excitement. Captive Insurance Times reported that Montana added 47 captives in 2013. The article noted that:
“During the 2013 legislative session, Montana’s law makers continued their overwhelming support of captive insurance by passing legislation to keep Montana at the forefront of competing domiciles,” wrote Montana commissioner of securities and insurance Monica Lindeen in the report’s foreword.
To read the entire article, CLICK HERE.
Win-Win-Win For Pro-Business States
Like many other pro-business states, Montana is clearly committed to having a strong and innovative captive insurance program. Captive insurance is truly a win-win-win for pro-business state governments.
Win #1 – A vibrant captive industry makes for stronger businesses. Businesses that own their own captive insurance company are better prepared to weather risk and uncertainty. This usually makes them more survivable, particularly as wealth amassed in a captive insurance company provide an additional “war chest” to business owners and CFOs.
Win #2 – A vibrant captive industry creates jobs in the state for professionals including captive managers, attorneys, actuaries, CPAs and third party administration firms.
Win #3 – Licensing captive insurance companies brings revenue into state treasuries. As the article in Captive Insurance Times pointed out, Montana collected $1.3 million in premium taxes on captives licensed in the state.
Competition Among Domiciles Makes Captive Ownership Increasingly Accessible
As the article pointed out, Montana’s legislature has been “passing legislation to keep Montana at the forefront of competing domiciles.” Competition increases accessibility in other industries (think cars, big screen televisions and cell phones… almost everyone can afford them). The same is true when it comes to owning a captive insurance company. Small and mid-sized businesses can own their own captive insurance company and benefit immensely.
Workers’ Compensation is often a key concern for risk managers, CFOs and business owners. Most employers have seen rising Workers’ Comp insurance costs over the past few years, and this trend is not expected to let up. To cut out insurance carrier profit and capitalize on the law of large numbers, many Fortune 500 and other large corporations self-insure their Workers’ Comp via a captive insurance company. This approach is cost effective and incentivizes risk managers and safety departments because their work can be directly tied to corporate profits (tied to the profits of the captive insurance company).
A growing trend in the employment of captive insurance companies is to utilize a captive as part of a company’s health benefits plan. The Patient Protection and Affordable Care Act (PPACA), also known as “Obama Care”, contains multiple provisions that increase costs for many employers. This has encouraged many employers to look for creative solutions to meet Obama Care requirements and provide meaningful benefits to employees without breaking the bank.
PPACA essentially divides employers into 2 groups; Those with 50 or more full-time equivalent employees, which we’ll call “large”, and those with less than 50 full time equivalent employees, which we’ll call “small.” PPACA applies different rules to both “large” and “small” employers and will cause significant cost challenges for many.
Large employers that choose to offer health insurance coverage (and those that don’t will pay penalty taxe