I thought it would be inappropriate to continue my “Hurricane Harvey and Captive Insurance” series while Florida was dealing with Hurricane Irma. But now that the worst is over, I wanted to continue my train of thought. Last week, I showed that controlling the claims process is an incredible advantage to owning a captive. This is especially beneficial during a large catastrophe because your captive won’t be flooded with non-parent company claims, slowing down the settlement process. Read More
The Importance of Controlling the Claims Process
I live in Houston, Texas. And while the last few weeks have been understandably difficult, I could not be prouder of my city or state. Watching the first responders work tirelessly for days was awe-inspiring. Seeing large numbers of people risking their lives to help rescue their fellow citizens was one of the greatest acts of selflessness I have personally witnessed. Kudos should also be given to numerous city, county, state and federal employees who swiftly and efficiently responded to the disaster. Read More
I divide the insurance market between “third-party insurers” and “captives.” The former are large, publicly-traded insurance companies. “Asset-liability management” — the science (or art, depending on your perspective) of timing the payment of liabilities with investment income — forces this group of companies to favor predictable risks. For example, suppose an insurer has a claim payable in 12 months. Their investment department will purchase an asset that will mature when the claim comes due. Unpredictable risks complicate this relationship, explaining why the large insurers shy away from these policies. Read More
My knowledge of popular culture is at best limited – and quickly declining. I know who Kanye West is. That’s it. But despite my less than literate knowledge of popular culture, this story from the Washington Post perfectly illustrates why he should have had a captive: Read More
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: Read More
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.
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.