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July 1 2012

Owning Two Businesses Is Better Than Owning One – Part Three

Randy Sadler Captivating Thinking

For the past two weeks, we described how businesses owners often increase success, profitability and asset protection by starting or acquiring a second business that serves their primary business.  Often described as vertical integration, this approach is often effective because a supplier or service provider is already making a profit serving the parent company.  A simple, well proven path for many businesses to achieve vertical integration is to start and own an insurance company, specifically a captive insurance company.

How Are Two Companies Really Better Than One (Part Three)?

For companies that have significant risk and high third party insurance costs, a captive insurance company can help reduce the company’s commercial insurance expenses.  There are two primary ways that a owning a captive can result in lower expenditures on commercial coverage.  First, the captive can cover the cost of deductibles and, importantly, cover a higher deductible which lowers the cost of commercial coverage.  Second, captive insurance companies have access to the reinsurance market.  Because a captive insurance company is a licensed insurer, it has the ability to bypass the commercial market to reinsure risk.  Bypassing the commercial market means bypassing commercial pricing as well.  This can result in significant savings to the parent company for the same level of insurance coverage.

What Is A Captive Insurance Company?

A captive is a unique insurance company.  It includes its own corporation, insurance license, reserves, policies, policyholders, and claims.  It is a sophisticated way to self-insure and is generally formed to insure the risks of its owners and related or affiliated third parties.

Are Other Companies Really Doing This?

The answer is “yes.”  There are over 5,700 captive insurance companies in existence today and over 4,700 of them have been started since 1980.  Consider an article from Insuranceonline.com that came out this week (Oct 25, 2012).  The article is titled “SELF INSURANCE REVOLUTION THREATENS BROKERS,” and it states “Every year more firms are using self-insurance and saving internally for risks rather than taking out insurance policies, according to a new report. Avoiding brokers’ commissions is a key driver too.”

 

To read the entire article, click here:  Insuranceonline.com

 The Window To Start Another Successful Business (By Forming A Captive) and Pay Premiums In 2012 Is Rapidly Closing

It takes 60 to 90 days to form a captive insurance company.  Call us to discuss whether or not a captive insurance company is the right move for your business portfolio.

Sincerely,

Tom King

Phone – 865- 386-4920

E-Mail – Tom@CICServicesLLC.com

Web –  www.CICServicesLLC.com

Ongoing Economic Downturn Makes Captives Even More Attractive to Risk Managers and CFOs

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  • Jay “Chicken Little” Adkisson Is At It Again
  • Vote Sean King, JD, CPA Of CIC Services For Power 50 In The Captive Insurance Industry
  • Tell Insurance Rate Hikes To Take a Hike – Here Is How
  • Ransomware Attacks Are On The Rise And Require Flexible Solutions
  • Somebody Has To Do It – Part 2 – CIC Services’ Opposition To IRS Attracts Massive Support

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9721 Cogdill Road, Suite 202
Knoxville, TN 37932
Phone: 865.248.3044
Fax: 865.966.1199

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Stronger Business Model

Businesses who implement ERM programs combined with a captive to plan for unforseen risks stand a better chance of surviving, and passing to the next generation.

Improved Cost Controls

Captive owners can leverage their ERM and captive programs to improve their negotiating ability when renewing their commercial insurance coverages.

Wealth Accumulation

Profitable captives will see their reserves grow over time to significant sums which can be utilized by their owners for retirement or other life cycle needs.

Advantageous Tax Treatment

Insurance companies are the only entities allowed to expense projected future expense against current-year revenues (claim reserves). Small captives (premiums of $2.2M or less per year) may also elect to only be taxed on their investment income, potentially resulting in substantial tax savings for their owners.

Insurance Profits

Utilizing your captive to reduce or replace your commercial insurance coverage with policies issued by your captive allows you to capture insurance profits previously realized by the carriers.

Improved Risk Management

Adding a captive and ERM program will result in a higher awareness and enhanced strategies for how your organization thinks about and plans for all risks.

Asset Protection

The assets held by a properly organized and managed captive enjoy a very high degree of protection from both the business’ and business owner’s creditors.