How To Turn Your Risks Into Profit
There are so many risks that keep a business owner up at night.
Will the market hold up to support my revenue goals and keep my employees on the job? Will the hurricane season be gentle this year and keep my service business thriving during its busiest time? Will a new innovative product disrupt my existing product lines?
These types of risks are beyond the owner’s control, but rather than fear them, a business owner has an alternative—more productive—opportunity: face your risks and develop a robust risk management program that can also be a profit center.
You may say to yourself, “I am using all my brain cells, time, and arms and legs to run my business. How can I divert time and energy to a risk management program?”
The answer: with a captive insurance company, you don’t have to. Captive insurance companies have been around for centuries and nearly every Fortune 500 company today utilizes one. By engaging advisors who can analyze their business as a fit for a captive insurance company, smaller businesses can form their own captive and use it to establish a robust risk management program.
As I explain in my new book, The Business Owner’s Definitive Guide to Captive Insurance Companies, business owners can establish and own a captive insurance company to insure their business. However, while the concept of a captive is simple, it is important to engage advisors to guide you through the process. These advisors should employ actuaries and underwriters to analyze your business and its particular risks. Along with your advisor, they can then structure a risk management program that includes captive polices insuring selected risks and commercial insurance covering other selected risks.
A captive provides you with flexibility to write insurance for coverages that may have been unavailable or too costly in the commercial market, like cybersecurity or legal expenses incurred in litigation. Then, rather than covering an event through self-insurance at a time when your business may or may not have ready cash, you can file claims with your captive from premiums set aside to cover insured, but perhaps infrequent, events.
Establishing a captive is a smart financial move for your company, too. Annual premiums up to $2.3 million paid to your captive are deductible, and under US IRS §831(b), these premiums are not taxable in your captive. Claims are paid from the premiums, but if your loss experience is good, the funds remaining in your captive are yours. These funds will grow as you pay annual premiums and invest them year after year. Contrast this with self-insuring or paying premiums to a commercial insurer who keeps your premiums year after year if your claims experience is low.
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So, instead of losing sleep over risk, I advise business owners to investigate establishing a captive insurance company. With the help of a good advisor, it will be structured to protect the business, improve overall risk management and build wealth for the captive owner. It’s hard to argue with protecting your business while also building wealth!
To learn more about captive insurance, and to find out if this is an opportunity your business should consider, take the free assessment at my website, peterjstrauss.com, or pick up your copy of my book, The Business Owner’s Definitive Guide to Captive Insurance Companies.
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.