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.
Last week, CIC Services we attended the 2014 Captive Insurance Companies Association (CICA) conference in Scottsdale, Arizona. CICA touts itself as the only domicile-neutral captive insurance association. We are members of CICA and attend the conference to stay abreast of legislative and regulatory changes that impact the captive insurance industry. The CICA conference also addresses new alternative risk concepts, emerging trends and best practices in the industry.
Snap-On was founded in 1920 and has always placed emphasis on innovation. Their business model is entrepreneurial with franchisees operating mobile tool trucks to provide delivery to end users. Snap-On’s 2013 annual sales were $3.1 billion, and the company has a $6.3 billion market cap. Snap-On’s has enormous reach with 11,300 associates worldwide. The company has a 1.6% cash dividend yield and has paid dividends without interruption or reduction since 1939. Dan attributed much of Snap-On’s success to its unique brand strength, strength of its franchisees and spirit of innovation.
Snap-On places tremendous emphasis on the health of its franchisees. Their success is Snap-On’s success. Their corporate office tracks franchisee health metrics and productivity. Dan pointed out that Snap-On’s excellent support of its franchisees enables the company to fill routes (or territories) more quickly. Snap-On’s stated promise to its franchisees is “…to provide assistance in protecting your business, so you can focus on growing your business.”
Dan discussed the company’s history in providing risk management to its franchisees. Snap-On started a “Tool Indemnity Program” in 1950 to cover losses incurred by franchisees. The “Tool Indemnity Program” functioned like a captive insurance company. In 1996, Snap-On realized it was operating an “unregulated” insurance company. The Risk Management Department scrambled to set up a captive insurance company called Snap-On SecureCorp to formally manage its Tool Indemnity Program.
Snap-On SecureCorp was established to provide insurance and benefits to 4,500 franchisees. SecureCorp’s motto is “3Cs – Cost, Coverage, Convenience.” Dan noted that “SecureCorp is very responsive in supporting franchisees with all claims settled in less than 30 days.” He noted that the CEO of Snap-On routinely receives letters from franchisees praising the SecureCorp coverage. Snap-On’s Risk Management Team is comprised of 9 professionals with three core functions: To Partner, To Protect and To Prosper. True to the core business model, the Risk Management Team focuses great attention on supporting franchisees.
According to Mr. Kugler, the SecureCorp captive insurance program has been a great success. It has provided exceptional support to franchisees and also functioned as a profit center. SecureCorp’s success enabled Snap-On to expand the insurance program to cover additional insurance needs for franchisees, including general liability, auto and inventory. SecureCorp also provides reinsurance for Snap-On Worker’s Comp and product liability insurance. Mr. Kugler noted that “We are always looking at what we can add into the Captive Insurance Company for both corporate risk management and franchisees. It’s great to do entrepreneurial risk management. It’s a lot of fun and great to support franchisees who are out selling tools.”
Captives aren’t just for franchisees. Any business or business owner that thrives on innovative and entrepreneurial thinking may be well positioned to manage risk through a captive insurance company. Snap-On’s story demonstrates that a captive insurance company can help a company drive its business model and better manage risk while simultaneously amassing profit.