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CIC Services, LLC recently attended the Captive Insurance Companies Association (CICA) Conference in Palm Springs, California as part of our on-going efforts to stay abreast of shifting trends, strategies and regulations in the captive insurance industry.  The conference was thematically focused on the future of the captive insurance industry.  We attended multiple presentations and workshops covering a wide range of topics, including demographic trends, risk management, medical malpractice, preparing witnesses in a lawsuit, reinsurance, captive investments, regulatory trends, and the creative employment of captive insurance companies.

Creative Uses of Captive Insurance

CICA 2013 included a session titled “Creative Uses of Captive Insurance.”  One of the presenters was Dan Schock of GMAC.  GMAC is a top 20 U.S. writer of automobile insurance with over $1.3 billion of premium written in 2012.  GMAC provides cover to private passenger autos, recreational vehicles and motorcycles.

It was no surprise that GMAC owns and utilizes captive insurance companies.  What was surprising was that the first reason provided why GMAC utilizes captive insurance companies was the role captives play in agency development and retention.

Captives Can Be Utilized to Reward and Retain Talent?

Did you read that headline right?  Save your income.  Live off your savings.  This sort of thinking certainly defies conventional wisdom.  However, for many professionals and business owners, this financial strategy can grow (not shrink) savings while simultaneously maintaining the same standard of living.

In our last “Captivating Thinking” article, we noted that most small and medium size businesses are under-insured.  The 21^st century economic, technological, political, regulatory, social and legal climate is very different than the climate businesses faced in the recent past.  Simply put, businesses face far greater risks both in the spectrum of possible threats to a business and the magnitude or potential loss those threats pose.    Most businesses insure common risks like theft, fire and general liability.  However,  there are a host of other risks that businesses face that are either specific to their industry or thrust upon them in the rapidly changing business climate.

Lawsuits are far more common in the current business climate, and lawsuits can come from both outside or inside a company.  Businesses face more and more regulations, and it’s not uncommon to read a news article about a business crippled or closed down by regulators.  Many businesses today also face cyber risks and threats to data security and IT systems.  As if that is not enough, terrorism in the U.S. now poses a legitimate threat to businesses.  And, many of these “new” risks are not covered by typical third party insurance policies.  These types of coverage often require additional policies that are often very expensive.

Should Businesses Simply Buy More Third Party Insurance to Address the Myriad of Risks Facing Their Business?

Tax avoidance is perfectly legal and encouraged by the IRS,

but tax evasion is against the law.

–         Internal Revenue Service Website

To what lengths should business owners and professionals go to reduce their taxes and keep more of their hard earned money?  Provided they are conducting legitimate business transactions, the answer is “to the full extent the law allows.”  The phrase “tax avoidance” may cause some to feel uncomfortable.  But, even the IRS acknowledges that tax avoidance is perfectly legal and encouraged.