Ongoing Economic Downturn Makes Captives Even More Attractive to Risk Managers and CFOs
This is our third letter about the Captive Live Conference in Chicago, Illinois. CIC Services, LLC recently attended the conference as part of our on-going efforts to stay abreast of shifting trends, strategies and regulations in the captive insurance industry. At this conference, we had the benefit of sitting in on a round-table discussion titled “The Future Role of Captives and Risk Managers.” The round table included risk managers from the U.S. Olympic Committee, Whirlpool, Equity Lifestyle Properties (a REIT catering to middle class retiring baby boomers), and H&I (a fireplace manufacturer).
The consensus of the round table participants was that in the years to come, their companies would use existing or possibly additional captives to insure a wider array of risks. The primary reasons for this expected shift are:
- The growth of government regulation will continue to burden businesses financially
- Many insurance companies have lost money in the economic downturn and will be passing on costs in the form of higher premiums to businesses in the near future
Growth of Government Regulation
Whirlpool, a global appliance manufacturer, operates in 180 countries. With “green energy” initiatives across the globe, Whirlpool is exposed to 8 new regulations passed every day that effect its product pipeline and existing products.
More than one round table respondent noted that their company is evaluating self-insuring health care to escape severe requirements under PPACA (affectionately known as Obama Care). Self-insurance strategies would likely include the use of captive insurance companies to cover a portion of health care costs. Respondents also noted that they envision relying on their captive insurance companies to contain or reduce the cost of worker’s comp insurance.
Insurance Premiums Expected to Rise
In the wake of the economic crisis, insurance companies need to get their money back. One respondent noted “The gravy train is over.” Respondents expected the cost of third party insurance to increase, and many are looking to their captive insurance companies to insure more risk. Properly structured, this will yield a more cost effective solution versus simply paying higher third party insurance premiums.
The panel’s conclusion was that “Risk mitigation is moving from just buying insurance to enterprise risk management. This means solving business problems. Our job is to solve problems and bring good value to the business.” All respondents expected their captive insurance program to be an important and expanding component of enterprise risk management. It is clearly one of the tools available that can significantly impact cost.
Smaller businesses are also heavily impacted by government regulations and third party insurance premiums. It is worth noting, that small businesses with captive insurance companies in place may also benefit from rethinking their overall risk mitigation strategy. 2013 is rapidly approaching, and many risk managers anticipate significant cost increases from regulation and third party insurers. Now is a great time for businesses to consider deploying a captive insurance company or expanding the role of their existing captive.
Five Worst ObamaCare Taxes Coming in 2013
Americans for Tax Reform recently reported on the “Five Worst ObamaCare Taxes Coming in 2013.” The article notes that twenty new or higher taxes will be levied on businesses and individuals by ObamCare. To read the entire article, click the link below.
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