We do most of our work with small and mid-market companies all across the U.S. No matter where I go, it is not uncommon to meet business owners and CFOs with a stage three case of Insurance Haters Syndrome or I H S (not to be confused with I B S, although the conditions do share many symptoms).
What Are Common Causes Of I H S?
It is difficult to provide an exhaustive list of I H S causes, but some of the most common are as follows:
The Sinking Feeling Of Sunk Costs – this sensation occurs when a business owner or CFO realizes that insurance premiums paid are gone forever and can only be recovered by a claim. However, they definitely DO NOT want a claim because that would mean something bad has to happen.
The Hot Potato Effect – this unsettling condition occurs when the business has claims, is dropped by their insurance carrier and bounces around looking for a new insurer.
The Anxiety of Amped Up Premiums – this condition is often – but not always – related to the Hot Potato Effect. It occurs when insurance premium levels rise sharply, impacting budget forecasting and profits.
The Cost Center Blues – this occurs when insurance and risk management are simply a cost center to the business.
The result is that insurance is often viewed as a “grudge purchase” or a “necessary evil.” It’s simply a cost to be born and certainly is not as energizing as crafting strategies to grow the business.
What Is The Cure For I H S?
The cure is to own your own insurance company! By owning an insurance company – specifically a captive insurance company – a business owner is able to improve risk management, reap insurance company profits and benefit from insurance company taxation.
Owning a captive insurance company cures I H S because it enables business owners to make a massive paradigm shift from viewing risk management as a cost center to viewing risk management as a profit center. Some highlights include:
1. A captive insurance company forms the chassis for an Enterprise Risk Management (ERM) program for small and mid-market companies.
2. A captive is the most powerful survival mechanism available to small and mid-size businesses.
3. A captive can help lower commercial insurance expenditures.
4. The profits of captive insurance companies belong to the business owner(s).
5. Small captive insurance companies can make an 831(b) tax election and be taxed at a rate of zero percent (0%) on underwriting profit. “Small” is defined as receiving premiums of $1.2 million or less (this threshold increases to $2.2 million in 2017).
Set Up One Of These And Call Me In The Morning
A captive insurance company is a real insurance company. Captives are formed and licensed to write insurance policies to related parties. In most cases, the same economic interests that own the insured business(es) also own the captive insurance company. Captive insurance companies can help TURN SUNK COSTS INTO SUNK PROFITS. My advice to business owners who hate insurance is:
DON’T HATE IT, WHEN YOU CAN OWN IT AND EMBRACE IT!