Captivating Thinking

This is a question that I am routinely asked – “what types of businesses own their own insurance company?”  A better question would be “what types of businesses would benefit by owning their own insurance company?” 

This week, we think it fitting to share Mick Higley’s “By The Number$” synopsis as we head into 2013.  Mick is a respected industry analyst, publisher and friend of CIC Services, LLC.   While a deal on the fiscal cliff has apparently been reached between President Obama and House Republicans, many of the tax increases outlined below will still take effect in 2013 (particularly for business owners.)

In addition to gaining the ability to self-insure and to own a profitable second business, a captive insurance company can also facilitate the purchase/sale of a business.  Prior to addressing this unique benefit, it’s worth noting the primary reasons that businesses form their own insurance company – specifically a captive insurance company.

1. To manage business risk by formally self-insuring certain risks with pre-tax dollars
2. To protect assets from creditors of the operating business and its owners or other risks
3. To realize profits and accumulate wealth inside of a separate business entity

This Summer, the U.S. Supreme Court upheld most provisions of the Patient Protection and Affordable Care Act (PPACA) that Congress passed in 2010.  PPACA, affectionately known as “Obama Care”, contains multiple provisions that will increase costs for many employers.  It also contains the contentious provision that will require most Americans to purchase health insurance beginning in 2014 or face fines and penalties (redefined and upheld as “taxes” by the Supreme Court).