You should continue to keep an eye on your risk management objectives and opportunities. A captive insurance company may be right for you in the future.
Everyone in the business world could stand to reduce the amount of money they spend on insurance while improving their overall risk management capabilities, but not everyone can use captive insurance in their business. For example, a manufacturing company that produces consumer goods likely has a need for quite a lot of insurance, while a passive business with few or no employees likely does not have such a pronounced need.
Based on your responses, your company does not currently match the profile of a typical captive insurance company candidate. However, all competent business owners know that when it comes to a decision as important as insurance, the path forward must always begin with a thorough analysis of your business and its needs.
Consider the three tips below from my book The Business Owner’s Definitive Guide to Captive Insurance Companies as a starter kit for your upcoming business insurance review.
1. Familiarize yourself with the fundamentals and history of captive insurance
Years ago when I first entered the captive insurance industry, I quickly learned that the crucial first step to pursuing a captive insurance company with a new client was making sure that he or she fully understood the history and basic principles behind the concept.
Despite their potential value to businesses, captive insurance companies remain a foreign concept to many business owners. This realization served as the inspiration behind my latest book, in which I break down the history, fundamentals, advantages, and steps to establishing a captive insurance company.
In fewer than 100 pages—easily consumed on a single flight—you will obtain all the prerequisite information you need to understand the captive insurance possibilities ahead of you.
2. Determine how much risk you are willing to self-insure
Life is filled with risk. Every day, you take risks in your business. Some of these risks are calculated. Other risks may not be at the forefront of your mind, or are completely unknown. Further, there are some risks that you perhaps know about, but that are simply too expensive for you to insure.
The question that you, your leadership team and advisors must ponder is: how much risk are you willing to self-insure? Some companies are highly risk averse, while others strategically leave themselves vulnerable to certain types of risk. Start by reviewing your company’s claims history, it’s vulnerability to catastrophic claims, and try to determine the level of risk your company is comfortable assuming.
3. Contact an experienced professional
When it comes to matters of insurance, you may or may not consider yourself a qualified expert. However, when it comes to captive insurance, you almost certainly do not feel prepared to grapple with the responsibilities of establishing a captive, handling the day-to-day operations, reinsurance, annual audits, tax matters, and so on.
Fortunately, there are many capable service providers who are prepared to assist you with the implementation and management of a captive. Properly arranged, you should only need to concentrate on what you do best: running your business. Should you choose to pursue a captive insurance company, contacting an experienced professional and starting the discussion is step number one.
Want to Learn More?
Explore Peter’s website for more information about his services, speaking engagements, and years of experience as an attorney and CEO.
Pick up your copy of Peter’s newest book The Business Owner’s Definitive Guide to Captive Insurance Companies, published by ForbesBooks, now available from major retailers.
Read Peter’s latest article on Forbes.com.