Captivating Thinking

A wise man (Stephen Covey) said “Seek first to understand, then to be understood.” It seems that the Captive Insurance Association (CICA) doesn’t understand small businesses and small business owners.  This myopia is not hard to understand.  Many members of CICA’s board are associated with large captives and large corporations.  The great danger is that misunderstanding can lead to misrepresentation.  Because they don’t understand the unique challenges and risks that small businesses face, it is easy to misunderstand and misrepresent small businesses

Entrepreneurial thinking and enterprises have created tremendous wealth in the United States, fueled upward mobility, expanded the middle class and provided a standard of living that would have been unimaginable to America’s founders.  This same entrepreneurial spirit gave rise to captive insurance companies as enterprising businesses looked for a better approach to manage risk.  In their early days, captives were primarily used to control insurance costs and ideally return a portion of premiums paid for insurance back to the parent company.

Beginning in the mid-80s, many businesses continued down an entrepreneurial path and shifted their mindset from risk management simply as a form of cost containment to risk management as a profit center.  Indeed, a “grown up” approach to risk management can be quite creative and entrepreneurial.  Making a paradigm shift from viewing risk management purely as a cost center to viewing risk management as a profit center and strategic pillar of the business can be very rewarding from a financial standpoint.         

Many mature and successful businesses have an immature approach to risk management.  For many business owners and CFOs, risk management is not an enjoyable topic.  Also, taking steps to develop a mature risk management approach sounds like code for “spend more money.”  However, the opposite is the case.  Developing and executing a more mature risk management approach will almost always increase the total wealth of a business and its owners while better managing risks.

The Snap-On tool company’s captive insurance program is a powerful corporate asset and the fruit of both innovative thinking and a passion to drive their business model.  The Snap-On model was built on the success of its franchisees, and Snap-On made insurance a key component of its franchise arrangements.  By doing so, it has been able to help franchisees remain healthy, weather adverse events and losses and do so in a cost effective manner.