Insurance In The Face Of Disaster
In the wake of this summer’s historic hurricane outbreak, insurance companies have come into the media spotlight.
Hurricane Harvey was the first category 4 hurricane to make landfall in Texas in almost 60 years. In a four-day period, many areas received more than 40 inches of rain as the system meandered over eastern Texas and adjacent waters, causing catastrophic flooding.
Just over two weeks later, Hurricane Irma roared through the Caribbean, reaching the southern boundary of Florida as a massive category 4 storm. Irma ravaged as many as nine mainland U.S. states, left millions without power and completely destroyed no fewer than 25% of all homes in the Florida Keys.
As these storms passed, insurance companies including State Farm, Farmers and Allstate, have been reassigning agents across the country, creating mobile claims stations and hiring additional staff to help respond to the massive influx of claims caused by Harvey and Irma.
When a natural catastrophe strikes, safety is everyone’s immediate and primary concern. When the storm clears, winds calm, and waters recede, people can begin to assess the extent of the damage and prepare to rebuild. It is easy to imagine what flood claims might look like: ruined floors, soaked furniture, vehicles that have been sitting in three feet of water, destroyed. However, many small business owners will face additional losses due to these hurricanes, some of which may not be as obvious.
While utilizing the commercial marketplace for major lines of coverage (i.e. general liability, property, etc.) can be crucial during major events like a hurricane, not all the losses your small business could suffer will be covered. I have been in the business of captive insurance for over a decade and it is in times such as these that I feel the most passionate about how captive insurance can help the small business owner.
First and foremost, a captive insurance company is a company established with the primary objective of insuring the risks that arise from the operating business of its owners. It provides a broad range of risk management capabilities. Owning a captive insurance company gives business owners the opportunity to retain favorable, profitable risks within the captive and transfer the less favorable risks (such as property and flood, in this instance) to the traditional third party market.
Additionally, the captive premium expense is tax deductible as an ordinary and necessary business expense. Utilizing a captive insurance company to fill the gaps of your commercial insurance can ensure you are covered for the outliers—the things that affect your business that often are excluded from your current commercial policies.
Consider the scenarios that might affect a small business after a disaster like Hurricanes Harvey and Irma: costs incurred by the property while the business is closed, extra expenses for moving to, and operating from, a temporary location, and loss of a key client due to the inability to deliver goods or services. Sadly, it wouldn’t be far-fetched for a small business to lose a key employee because their home was damaged and they needed to relocate. What if the business was hosting a major event that was cancelled? Or what if it couldn’t finish a job on time? There are a multitude of scenarios that occur, and because you as the business owner know your business better than anyone—including the risks that keep you up at night—you are the person who should make the decisions as to what should be covered.
Creating a captive insurance company is like saving money for a rainy day, and in the case of this summer’s storms, there is no shortage of rain. Imagine the reassurance you would feel knowing that you are in control and have a plan in place that doesn’t involve waiting for your commercial insurance company to hire additional people and create mobilization plans.
To learn more, visit us at hamiltoncaptivemangement.com.
Peter J. Strauss is an attorney, captive manager, speaker and author of The Business Owner’s Definitive Guide to Captive Insurance Companies with ForbesBooks. Learn more at thestrausslawfirm.com.