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On Friday, June 29th, at 10AM, we're giving a 1-hour course in captive insurance. If you're a CPA, CFP or Texas insurance Agent, it's good for 1-hour of CE. You can sign up at this link.
If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources One of the primary objections I hear from insurance agents about captives is that commercial policies are comprehensive. But, the devil is really in the details here -- or, more specifically, in the legal precedent interpreting the policies. For example, how comprehensive is a duty to defend? On the surface, the wording looks pretty iron clad. But there's a big split among the states as to what duties this actually encompasses: Does the duty to defend require an insurer to prosecute an insured’s counterclaims or fund the insured’s counterclaims? The First Circuit certified these questions to the Massachusetts Supreme Judicial Court. In Mount Vernon Fire Insurance Company v. Visionaid, Inc., issued on June 22, 2017, the Massachusetts Supreme Judicial Court answered them, concluding that the duty to defend – under either contract or the common law – encompasses no duty either to prosecute a counterclaim or to fund the prosecution of a counterclaim. ..... Some states view it as an unambiguous word, excluding representation for claims by the insured. Other jurisdictions view “defend” as ambiguous, requiring insurers to prosecute affirmative counterclaims in some instances, such as where the counterclaim would reduce liability on, or is factually intertwined with, the underlying claim. Massachusetts now firmly stands with those states following the literal and narrow reading of “defend.” This opinion also resolves any ambiguity about the scope of defense cost payments under Massachusetts law by clearly stating that the duty to defend and the duty to pay defense costs are co-extensive. If the company had a captive, they probably would have underwritten a legal liability policy, which would have indemnified them for this loss.
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If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources For smaller companies, captives usually cover "stochastic" risks. These are infrequent events that are more expensive than the average claim. Employment lawsuits are a good example, as shown by several studies. U.S.-based small and medium sized businesses face an almost 12 percent chance that they it will be hit with an employment claim, with their chances much higher in certain states. A new study of employee charge trends by specialty insurer Hiscox found New Mexico, Washington, D.C., Nevada, Alabama and California as the top states for employee lawsuit risk in the U.S. Employers in these markets with at least 10 employees face a substantially higher risk of being sued by their employees when compared to the national average. According to the study, U.S.-based companies have at least an 11.7 percent chance of having an employment charge filed against them. Not only are these events more common then you'd like, they're also expensive. Hiscox claims data for small and mid-sized businesses (under 500 employees) indicate that one in five will face employment charges with an average cost to defend of $125,000, which includes expenses such as attorney’s fees and settlement costs. For those that did have insurance coverage, the average deductible cost was only $35,000, compared to the $90,000 balance paid out by their insurance company. The median judgment for cases that go to trial is approximately $200,000 for employment lawsuits adjudicated by the courts, while one-in-four cases resulted in a judgment of $500,000 or more, according to the study. These figures are confirmed for by other sources: A representative study of 446 closed claims reported by small- to medium-sized enterprises (SMEs) with fewer than 500 employees showed that 19% of employment charges resulted in defense and settlement costs averaging a total of $125,000. On average, those matters took 275 days to resolve. Due to the unpredictability of costs and fairly high claims history, this is a perfect coverage for a captive insurer. If you're a CPA of CFP and would like to learn more about captives, please sign-up for our continuing education presentation on captive insurance. It's free and will provide you with a 1-hour continuing education credit. Our next webinar is on May 31 at 11AM CST.
If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources Manufacturing has gone through a fundamental change over the last 50 years. Previously, companies stored parts on site, using them when required by the manufacturing process. Now, everybody uses a "just in time" system, where parts and materials are delivered right before they are used. This creates a potential problem: what if a crucial part isn't delivered on time? The company has to either slow down production or stop altogether, potentially losing revenue in the process. A "supply chain disruption" policy -- a staple of captive insurance companies -- can minimize the damage. These policies indemnify the company for the loss related to the delay. A recent story from Bloomberg highlights this risk: BMW AG will seek compensation from Robert Bosch GmbH after missing parts for models including the bestselling 3-Series sedan caused production stoppages in Germany, China and South Africa. A lack of steering gears supplied by Bosch, the world’s largest car parts supplier, means there’s only limited vehicle production at various German plants, while factories in Tiexi, China, and Rosslyn, South Africa, have moved up or extended planned interruptions, BMW purchasing chief Markus Duesmann said Monday in an emailed statement The Boston Fed's 2016 Cyber Security Conference Shows the Need for This Coverage, a Captive Staple5/7/2017 If you're a CPA of CFP and would like to learn more about captives, please sign-up for our continuing education presentation on captive insurance. It's free and will provide you with a 1-hour continuing education credit. Our next webinar is on May 31 at 11AM CST.
If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources Because financial institutions hold assets and a large amount personal information, they're a natural target of hacking. This is more than a hypothetical: over the last 24 months, the Central Bank of Bangladesh has been hacked as have other large institutions. Realizing the importance of this problem, the Boston Federal Reserve held a conference on cyber security in the spring of 2016. This link has a number of relevant presentations from that conference. The cost of Cyber coverage has increased over the last 24 months, thanks to an increasing number of large claims. As a result, companies are at minimum placing their deductible cyber coverage in captives at an increasing rate. Please call us at 832.330.4101 if you'd like to learn more If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101.
We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources Last week, footage of the Chicago Transit Police forcibly removing a United passenger went viral. But just as shocking was United’s response. Their first public statement will go down in public relations history as one of the most tone deaf responses ever. It took the company 24 hours and three attempts before its communications contained the appropriate level of contrition. In the intervening period, their stock price dropped and public perception of the company plummeted. United is clearly a company that needs to engage in an aggressive PR campaign to right their image with the flying public. If they had a captive insurance company (and, like most Fortune 500 companies, they probably do) and had the foresight to properly underwrite a group of business policies, they would have a reputational restoration policy that would reimburse the parent company for PR expenses and some of the lost income. This is simply one more real world example where a captive could provide insurance not underwritten by traditional third party carriers. If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources It's no secret that the U.S. economy is increasingly based on intellectual capital. This means the cost of defending one's IP rights should be at the forefront of any business with intangible assets. According to the 2015 Economic Survey conducted for the American Intellectual Property Association, the median cost of litigation is high:  While there are commercial policies available for this exposure, a captive provides the best option for several reasons:
1.) A custom insurance policy: an insurance policy provided by the insurer isn't written to the insured's advantage. In contrast, a captive allows the insured complete control over contract language, insuring coverage. 2.) Complete control of litigation: having a captive allows the insured to chose the counsel best suited to the case. 3.) Fewer problems with claims: while captive adhere to insurance industry standards regarding the claims process, the ability to control the claims process allows the insured more control. If you or a client of yours is interested in using a captive for their IP coverage, please call us at 832.330.4101. If you'd like to add captive insurance to your professional offerings and would like to become an affiliate, please contact us at 832.330.4101.
We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources The website accounting tools provides the following definition of “reserve” “A reserve is an appropriation of profits for a specific purpose. The most common reserve is a capital reserve, where funds are set aside to purchase fixed assets. By setting aside a reserve, the board of directors is segregating funds from the general operating usage of a company.” For example, suppose a company installs a product and, as part of their service contract, guarantee their work for a specific amount of time. In order to pay for this work, the company’s accountant sets aside a specific amount of money in a “reserve” account to indicate the potential cost of this service. Over a number of years, the size of the reserve increases as the company sells more of its service. In effect, a reserve is nothing more than a company saying, “we potentially have to spend $X amount of dollars on this item.” But the reserve is an accounting liability; the larger it grows, the more it can negatively impact the company’s net worth and, by extension, the company’s ability to get and maintain credit. A far better option is for the company to reclassify the reserve as an expense, usually by converting it into a warranty program. This allows the company to remove the liability from its balance sheet and place it into a captive insurer. This also turns a segregated liability into an expense, which is far more efficient. In reality, if your company is using a reserve for a liability, it’s already more than halfway to forming a captive insurer. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources
I recently had a client place family heirlooms with a service. Unfortunately, these were stolen while in the service's possession. The items were not only valuable from a monetary perspective but also in a sentimental sense. And, it's highly doubtful they will ever be found. This experience reminded me once again about employee fidelity coverage and captive insurance. While commercial coverage is available, it's important to note that insurance companies have several strong arguments at their disposal to deny a claim. In contrast, captive policies can be written to prevent the captive from asserting these claims thereby giving the insured broader coverage in the event of loss. To get an idea of the costs related to theft, consider these statistics contained in this link from the Association of Certified Fraud Examiners. On Friday, March 3, we're offering a free, 1-hour CPE course for U.S. based accountants and CFPs. You can sign up at this link. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources Once again, the IRS has placed “certain” captive insurance structures on their Dirty Dozen list. This latest inclusion argues that certain structures “… lack many of the attributes of genuine insurance. It therefore seems appropriate to briefly explain the common law definition of insurance. What follows is a brief summation of the primary components of insurance as developed over approximately 150 years of common law. For a more detailed treatment, please contact us at 832.330.4101 or Halestewart@halestewartlaw.com. 
On Friday, March 3, we're offering a free, 1-hour CPE course for U.S. based accountants and CFPs. You can sign up at this link. We own and operate the first Montana based series LLC named Aegis. We run it in conjunction with Aceterrus Insurance Resources Every business has a “must have” insurance policy. For professionals (doctors, lawyers and accountants) it’s professional liability; for real estate developers its property; for manufacturers its product liability, product recall and potentially supply-chain interruption. For the reader, simply think about the primary risk your business faces and how you cover that with some type of insurance policy. Visually, most people buy coverage that looks like this:  In the above graphic, each cell represents $250,000. Most businesses buy a standard $1,000,000/$1,000,000 policy – their insurance will cover each “incident” up to $1,000,000 (the first $1,000,000 on the left side of the slash) while the insurance company will, at most, cover $1,000,000 for all claims filed during the year (the second million on the right side of the slash). In the above graphic, an insurance company will indemnify the insured for each $250,000, starting at 1 cent. Let’s now suppose that you’re a really good risk – you’ve never filed a claim. At the same time, you’ve never missed a payment. That means that all you’re really doing is fattening the insurance company’s bottom line while also paying claims for people who are riskier. Wouldn’t it make more sense for you to assume some of that risk? Thanks to a deductible reimbursement policy, you can. Let’s change the above graphic into this:  Now you buy your standard policy from your third party insurer, but with a twist: you get a $500,000 deductible. Next, you form a captive insurance company that sells your company a “deductible reimbursement policy,” which provides coverage for the first $500,000 – the red area above. In the event you file a claim, your captive covers the first $500,000 of risk. Instead of sending all your premium money to an insurer, you are some of that money to yourself.
This is very similar to the difference between renting a home and owning a home. In the former, you make your landlord rich, in the latter, you help to make yourself rich. As I often tell clients, when done properly, insurance is a very profitable business. Please contact us at 832.330.4101 if you'd like to learn more. |
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