Captive Insurance

Shortlisted for 2018 US Captive Review Awards

RMC Group has been shortlisted for the 2018 US Captive Review Awards. We have been nominated in the category of Captive Management – Group Captives.

The Captive Management – Group Captives award is open to all firms managing group captives in the US.  The nominees have demonstrated the ability to provide clear and bespoke customer service and to provide customized solutions for their clients. The judges will be looking for examples of innovative group captive programs and attention to client needs.

The winners will be announced at the awards ceremony on August 6, 2018, at the Hilton Burlington in Burlington, Vermont.

For more information on this event, CLICK HERE.

Captive Insurance

Reputational Risk – A Captive Opportunity

Risk management has changed significantly over the past decade. One of the most important changes involves emerging risks.  The term “emerging risk” generally refers to risks that were not previously recognized, but are now known to expose a business to significant loss.  One “emerging risk” is reputational risk, which has become an important part of a risk management strategy.

“Reputational risk” recognizes the importance of a company’s good name and the affect that negative publicity could have on its revenues.  In addition to lost revenues, a company could also be exposed to significant costs, including litigation, to restore its reputation.  It is not surprising that a report published by Deloitte Touche Tohmatsu Limited found that reputational risk topped the list of executive concerns for the fifth straight year.  According to the report “a company’s reputation should be managed like a priceless asset and protected as if it’s a matter of life and death, because from a business and career perspective, that is exactly what it is.”

One strategy to help a business manage reputational risk is insurance. Many commercial insurers have begun to offer reputational risk insurance, both as a stand-alone policy and as an add-on to the traditional directors’ and officers’ liability policy.  However, the coverage offered by commercial insurers is often inadequate.  In addition, some insurers only offer coverage for lost profits, while others only offer coverage for expenses incurred in restoring the company’s reputation.  These gaps in coverage could leave a business exposed to significant loss.

RMC Group advocates a holistic approach to risk management.  This means that a business should look to non-traditional forms of insurance, when commercial insurance is inadequate.  Reputational risk insurance is an area in which a captive insurance company can provide an ideal solution.  A captive allows a business to provide insurance that is written to address the specific needs of the business.

A typical RMC’s Reputational Risk insurance policy issued by a captive provides broad coverage similar to the following:

This policy will cover lost revenue and the costs and expenses incurred by and Insured caused by the publication by a third-party of a statement or opinion that negatively affects an Insured’s reputation. The profitability of the business is closely tied to the positive reputation of the business conveyed to the public sector. Should the Insured’s reputation be damaged, the Insured would likely suffer a reduction in business revenue and would incur additional expenses to reclaim a premier reputation. The policy would reimburse the Insured for both loss of business revenue and expenses incurred in restoring the Insured’s reputation.

A captive is an ideal solution for reputational risk insurance, as well as other emerging risks. In fact, a recent study showed that two-thirds of respondents believed that commercial insurance was inadequate to protect their business from reputational risk.  This provides an opportunity for a financial advisor to present their clients with the captive option.

Helping your clients manage emerging risks, such as reputational risk builds loyalty and offers you an opportunity to move beyond the selling function and act as a true risk management consultant. RMC Group can help you in this regard. To learn more about the benefits of captive insurance or the emerging risks they could cover, contact your RMC regional representative today or our risk department at 239.298.8210.

Business Insurance Captive Insurance

P&C Rates Rise, Think Captives Instead

Property and casualty insurers are predicting a substantial increase in 2018 insurance premiums; thanks to Hurricanes Harvey, Irma, and Maria, two earthquakes in Mexico, and the widespread devastation caused by the California wildfires. However, a business can mitigate the financial impact of these natural catastrophes by taking on some of its own risks through the use of a captive insurance company.

A captive insurance company can play an integral role in shielding a business from the volatility of the commercial insurance market. A business can better manage its insurance risk through a captive insurance company. A captive enables a business to tailor its insurance coverage to its specific needs. It is not limited to the coverages available in the commercial insurance market. In addition, a captive insurance company can reduce costs, because it is not affected by losses incurred in unrelated lines of business.

For example, commercial carriers may offer certain types of policies only with very high deductibles. This means that a business may have to pay many thousands, or even millions, of dollars, out-of-pocket, before it can recover under the policy. A captive insurance company can provide coverage for that deductible or even offer a replacement policy that provides more complete protection at a lower cost.

A captive insurance company is a great way to reduce insurance expenses. A captive eliminates most internal costs incurred by a commercial insurance company, such as commissions and overhead expenses. As a result, premiums paid to a captive more accurately reflect the actual insurance risk assumed by the captive.

To learn more about the potential cost savings of a captive and to increase your control over claims, contact RMC Group today at 888.599.5553 or [email protected].

Captive Insurance Health and Benefits

Medical Plans with Stop-Loss

An employer that self-funds its medical benefits plan needs stop-loss insurance to protect it from larger than expected claims, whether for a single employee or its entire workforce. With stop-loss insurance, an employer will not be responsible for claims in excess of certain pre-set limits for the policy year. Once claims exceed these limits, the stop-loss carrier assumes the liability.

There are two types of stop-loss insurance:

Specific Stop-Loss Insurance, sometimes referred to as “individual stop-loss insurance”, protects an employer in the event that a single employee has larger than expected claims. This type of coverage reimburses the employer for claims made by an employee in excess of the policy’s per-employee deductible.

Aggregate Stop-Loss Insurance protects an employer from high claim volume. This type of coverage reimburses the employer in the event that the total claims of all employees exceed an overall deductible for the policy year.

While self-funding a medical benefits plan may make sense for a particular employer, stop-loss insurance is critical to protect the employer from catastrophic claims. If even one employee gets cancer or has surgery, the cost to the employer that self-funds medical benefits can be hundreds of thousands of dollars. This could be devastating to a small business. Stop-loss insurance protects the employer from such claims. With stop-loss insurance, an employer knows that its total cost cannot exceed a pre-determined amount.

To get a quote on Medical Stop-Loss, CLICK HERE for the application. For information on how to get a quicker and more accurate quote, CLICK HERE. Please email the completed application and all other required information to [email protected]. If you have any further questions, call RMC Group at 888.599.5553.

Business Insurance Captive Insurance

8 Reasons Why You Should Form a Captive

Many business owners have formed a captive insurance company and realized significant benefits.  However, the decision whether to form a captive is often clouded by misconceptions and a failure to recognize the advantages of owning your own insurance company. A captive insurance company is an excellent risk management tool.  In addition, it can be a profitable business and can offer significant benefits to the owner(s) and insured(s). Here are 8 reasons to form a captive insurance company:

1. Coverage Control: A captive insurance company enables a business owner to better manage insurance risk.  By establishing a captive, a business owner is able to tailor coverage to the insurance risks that are specific to the business.  In addition, the business is not limited to coverages that a commercial insurer is willing to offer.

2. Uninsurable Risks: A captive insurance company can provide coverage for insurance risks that are unavailable or prohibitively expensive in the commercial market.

3. Cost Reduction: A captive insurance company can reduce insurance expenses by eliminating commercial insurance company costs, such as commissions, overhead expenses, and profits.

4. Underwriting Profits: A captive insurance company can be a source of profit.  Premiums paid to the captive in excess of the claims paid by the captive are retained by the captive as net profit.

5. Rate Control: A captive insurance company provides greater control over a business’s insurance costs.  Premiums paid to a captive are based on the claims experience of the associated business.

6. Reinsurance Access: A captive insurance company can provide access to the reinsurance market, which may result in better coverage at a lower cost, when compared to the commercial insurance market.

7. Investment Income: By forming a captive insurance company, a business owner can control the investment of unearned premiums and reserves, instead of paying these amounts to an unrelated commercial insurance company.

8. Claims Control: By forming a captive insurance company, a business owner gains control over the claims adjudication and payment process, which can result in a more efficient and expeditious process.

If you think that a captive might be right for your clients, contact us today!

Business Insurance Captive Insurance

Specialized Captives for Health Care Providers

Over the last several years, health care providers, including hospitals, health maintenance organizations, physicians, and physician groups, have experienced increased medical professional insurance costs. As a result, many have sought alternatives to the insurance policies and services offered by traditional insurance carriers. A popular alternative is a captive insurance company (or “captive”).

A captive is an insurance company formed by a business owner to cover the insurance risks of the business. Like any business, a health care provider can form a captive to cover its insurance risks, including medical professional liability (or “MPL”). A captive gives a health care provider greater control over its insurance needs and allows it to reduce premiums paid to traditional insurance carriers.

The challenge for a health care provider seeking to use a captive is the inherently unpredictable nature of risk. It is nearly impossible to predict when a medical malpractice lawsuit will be filed.  In addition, the damages could be catastrophic.  As a result, a captive providing MPL insurance may need the help of the traditional insurance market to mitigate its exposure. This is done through reinsurance.

In a reinsurance arrangement, an insurance company obtains insurance from another insurance company to cover some of the risk. Reinsurance enables an insurance company to take on greater risk, because some of its risk is transferred to the reinsurance company. This protects the insurance company from a catastrophic claim. Almost all insurance companies are involved in reinsurance arrangements.  A captive, especially one offering MPL insurance, should also use reinsurance.  The problem is that a captive cannot always gain access to the reinsurance market, and, when it can, the premiums are often prohibitively expensive.

RMC Group has developed a “turn-key” reinsurance program that enables MPL captives to participate in the MPL reinsurance market. The program provides MPL captives with a quick, efficient, and cost-effective solution to their MPL risk management needs.

Backed by AM Best “A-” or better rated carriers, RMC Group’s reinsurance program provides access to the MPL reinsurance market at competitive rates. The RMC Group MPL reinsurance program offers equitable and affordable terms and conditions for captives with $250,000 to $30 million of annual MPL premiums.

For more information on this reinsurance program, contact your regional representative or RMC’s headquarters at 888.599.5553.

Captive Insurance

Risk Management and You

Risk is defined as the potential of losing something of value. It is a potential, unpredictable, and immeasurable outcome. It is the consequence of action in spite of uncertainty.  Individuals and business owners face risk daily in their business operations, in their ownership of goods and property, and in their everyday lives. Risk comes in many forms such as fire, theft, auto accident, loss of life and limb, health problems, and loss of income. Management of risk then becomes a major factor in the preservation of one’s property and well-being. Protecting oneself and one’s company is the role of a risk manager and a role that can be filled by RMC Group. RMC has an experienced team ready to help you manage your personal and commercial risks.

Risk Management is and has been a “buzz” word in the small to medium size insurance world for the past ten years. Even with the growing name recognition, most companies still have little to no knowledge on what Risk Management is and how it is implemented. Risk Management was once thought of as a toll for only the largest companies or the wealthiest individuals in society, but times are changing. Risk Management and the various sub-categories are being utilized by small to medium sized companies, as well as individuals to help protect assets, alleviate liabilities, and ensure financial stability.

RMC specializes in captive insurance management for small to medium sized commercial companies. Captive insurance has been a tool used mainly by Fortune 500 companies for well over forty years and is now used in the small to medium size marketplace. A captive insurance company is an insurance company formed to insure the risks of its parent company and its affiliates. Captive insurance comes in many forms, but RMC specializes in Single Parent and Incorporated Cell structures.

The benefits of a captive are many; a captive can provide coverage for risks unavailable commercially, protect against catastrophic events, may reduce insurance expense, and allow access to the reinsurance market. A captive allows a company to gain control over its insurance needs.  Premiums can be based on your claims experience and not that of the industry. A captive can and should be a separate profitable line of business. Additionally, RMC Group operates a Property and Casualty (P&C) agency that can provide risk management tools through commercial means to both individuals and businesses. The P&C team works hand in hand with the captive division to protect the assets and livelihood of each and every client. A free insurance portfolio review is provided to all clients enabling us to look at your risks and provide recommendations and options.

When was the last time your personal or commercial risks were assessed? Contact RMC Group today at 888.599.5553 for your current risk assessment.

Captive Insurance

PATH Act and Impact on Captives

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the “Act”).  The Act amends section 831(b) of the Internal Revenue Code in two ways that may affect the tax treatment of small property and casualty insurance companies, including captive insurance companies.

First, the Act increases the amount of premiums that an insurance company may receive and still be eligible to make an election under section 831(b).  Under current law, the limit is $1,200,000.  The Act increases the limit to $2,200,000.  In addition, the limit is indexed for inflation with 2013 the base year for calculating the inflation adjustment.

Second, the Act adds a diversification requirement to section 831(b).  The Act provides two ways in which an insurance company can satisfy the diversification requirement.  The first is the “Risk Diversification Test”.  This test is met if the insurance company receives no more than twenty percent (20%) of its net written premiums (or, direct written premiums, if greater) from a single policyholder.  Should a captive insurance company fail to satisfy this test, it will be required to satisfy the second test.

The second way in which an insurance company can satisfy the diversification requirement is through the “Relatedness Test”.  This test prohibits a spouse or lineal descendant of an owner of the policyholder from having a percentage interest in the insurance company that exceeds his or her interest in the policyholder by more than a de minimis amount.  The term “de minimis amount” is defined as two percent (2%).  To illustrate, let’s assume that the ABC Company forms the ABC Captive Insurance Company.  Let’s also assume that Father owns sixty percent (60%) of the ABC Company and Son owns forty percent (40%) of the ABC Company.  Under this fact situation, Son can own no more than forty-two percent (42%) of the ABC Captive Insurance Company.  If Son owns more than forty-two percent (42%) of the ABC Captive Insurance Company, then it is not eligible to make an election under section 831(b).

There are two additional points to make about the Act.  First, the Act becomes effective for tax years beginning after December 31, 2016.  So, existing captive insurance companies have some time to adjust to the new provisions of section 831(b).  The Act contains no grandfathering provisions.  Second, the Act simply changes the requirements for making an election under section 831(b).  It does not change the law regarding insurance.  A captive insurance company that does not satisfy the diversification requirements of the Act will not be eligible to make an election under section 831(b).  That does not necessarily mean that it is not a bona fide captive insurance company.  It simply means that it will be taxed in accordance with the provisions of section 831(a), like larger property and casualty insurance companies.

Captive Insurance Compliance Update

IRS Revenue Ruling 2002-89 [Compliance Update]

In 2002, the IRS issued guidance on captive insurance. The three new revenue rulings and a revenue procedure address deductibility of premiums paid to a wholly owned insurance subsidiary.  The first revenue ruling can be found HERE.