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Middle Market Businesses Need Insurance Alternatives
February 28 2020

Middle Market Businesses Need Insurance Alternatives

Randy Sadler Captivating Thinking, Uncategorized

Commercial insurance markets are hardening and rates are going up, putting pressure on businesses and risk management decision makers. Nate Reznicek, ACI, Director Of Operations at CIC Services has recently published a thorough article in CAPTVE INTERNATIONAL that addresses the causes of the current hard market and steps that business owners, CFOs and Risk Managers in middle-market companies can explore to reduce the impact they feel.

To read Nate’s article in CAPTIVE INTERNATIONAL, CLICK HERE.

He points out that:

For many years, carriers were focused on generating premium volume. They enjoyed an extended period without significant catastrophe events, allowing insurers to offset underwriting losses with additional capacity. The result was more than a decade of relatively flat rate change.

But all good things must come to an end-for the insurance buyer at least. A string of significant global catastrophic losses impacted the insurance market, resulting in decreased capital and market capacity. The decrease in capacity then necessitated an overdue correction in underwriting methodology, from a volume-based business model towards one of examination of underwriting profitability of individual risks.

Many small and middle market companies are looking for alternatives to the guaranteed cost market, and Nate discusses Small Captives, Traditional Fronted /Reinsured Captives and Group Captives as middle-market solutions that can help address rising insurance costs. He also discusses the power of captive programs to drive innovation.

The combination of new and innovative programs like RE-PAID [CIC SERVICES BUNDLED PROGRAM utilizes the RE-PAID chassis], and competition among captive domiciles, is driving fundamental change in risk financing for [Small and Middle Market Enterprises], the like of which has not been seen since the advent of group captives.

It’s unlikely that the upward pressure on insurance prices will let up any time soon. According to Nate, “Well-managed [small and mid-market companies] and their brokers should look to leave the traditional guaranteed cost market as soon as they are culturally and financially able to do so, lest they find themselves priced out of their own market due to the rising costs of insurance.

To read Nate’s article in CAPTIVE INTERNATIONAL, CLICK HERE.

Learn more about Captive Insurance – CLICK HERE.

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  • 2020 Lessons Learned: Captive Insurance And What The Future Likely Holds For Middle-Market Companies
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  • Webinar: 2020 Lessons Learned: Captive Insurance And What The Future Likely Holds For Middle-Market Companies
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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.