Captive

CAPTIVE INSURANCE PROGRAMS

2020 MADE US REALIZE WE ARE SELF
INSURING SOME RISKS AND EXPOSURES

Most Garage Insurance Policies either have limited coverage or no coverage for the following exposures, meaning you already self-insure these events.  Why not set aside funds to cover these events, taking a deduction, deferring taxes, and paying tax on ordinary capital gains. Coverage is provided above and beyond traditional garage policy limits or coverage availability. 

• The cost of garage liability insurance has forced most dealers to increase their deductibles to manage their premiums, insurers have eliminated deductible caps on weather related inventory claims, Employment Practice deductibles are routinely $50,000 or more and worst of all, earthquake deductibles are 10 to 25% of the limit not the loss.  Under a 831(B) Safe Harbor Plan, you can set aside funds to pay for uninsured risk, which include deductibles.
• Customer complaint defense limits are often limited to $25,000 per occurrence with an annual aggregate.  Dispute resolution coverage is available with increased limits and broader language.
• Business interruption coverage is available for pandemic related shutdowns.
• Coverage is available for third party business interruptions, and supply chain disruption.
• Brand protection from adverse publicity.

Use the tools that are used by Fortune 500 companies with an 831(B) captive insurance company.

• Take advantage of tax code passed by Congress in 1986
• Owner contributions (premiums paid in) are tax deductible
• Allows for accumulation of assets to indemnify you in the event of a covered loss
• If annual premiums are under $2,300,000, underwriting profits are taxed when distributions are taken
• Distributions are taxed at qualified capital gains
• You decide who owns shares in the company
• Compliance
• Services Provided
• 831(b) – 401(k) Similarities
• There is IRS scrutiny on these plans, as the IRS wants to ensure 831b plans are not solely used to mitigate taxes
  • Annual requests from IRS for info to ensure compliance
  • Contribution limits and distribution requirements
  • There are IRS Safe Harbors to ensure compliance with a 4 Part Test
    • Risk Transfer
    • Risk Distribution
    • Fortuitous Risk
    • Insurance Principles
  • There are limitations regarding investments choices while premium is earning out
  • Policies are on an annual basis
  • There is greater flexibility on use of assets once premium has earned, including loans
• We provide the required 3^rd Party Admin
  • Preparation of risk mitigation plan documents
  • Insurance policies for the risks insured
  • Monitoring compliance with rules and regulations
  • Approval of transactions
  • Annual compliance filings
  • Annual tax return preparation

  Much like the 401(k) tax code allows an employer to set aside tax-deferred dollars for retirement, the 831(b) tax code allows a business to set aside tax-deferred dollars for contractual liabilities. The similarities are clear and business owners should consider the risk mitigation advantages.

  

  Types of 831(b) Programs

  Safe Harbor Plans

  When there are a number of “units” of risk or exposures on a single policy, this type of structure is considered a 831(b) Safe Harbor Plan Structure, just like a vehicle service contract reinsurance program.  Below is a partial list of available Safe Harbor Plans, including some non-automotive programs.

  Enterprise Risk Management Policies

  When insurance policies are issued for a specific risk or exposure under a Enterprise Risk Management policy 831(b) program, there needs to be risk distribution (sharing) among unrelated parties or businesses.  The below list is a sample of the risks that are reinsurable.

  Deductible Reimbursement

  Deductible Reimbursement
  As traditional carriers continue to minimize their claims exposure, deductibles continue to grow and place a greater burden on the insured. For businesses with an insurance policy or policies covering seven or more individuals, autos, buildings, etc., SRA’s Deductible Reimbursement product allows companies to accumulate tax-deferred reserves to lower the burden on cash flow that a large deductible can create at a time when it’s needed most.

  Deductible Reimbursement Benefits
  • Helps manage the unfunded liability associated with high deductible property and casualty policies
  • Accumulate reserves that are tax-deferred to meet high deductible amounts
  • Allows business owners to more effectively manage its risk financing
  • Create opportunities down the road for managing premium and deductible rates

  Medical Allied Reinsurance

  Medical Allied Reinsurance Company
  Healthcare costs continue to rise and prove to be a burden on companies’ bottom line. For businesses currently participating in a self-funded plan, or wanting to adopt one, the Medical Allied Reinsurance Company (MARC) is a bolt-on that allows companies to stabilize premium rates, mitigate max claims expenses, and better leverage the advantages of a self-funded plan.

  MARC Benefits
  • Helps manage the risk associated with self funded healthcare plans
  • Build a tax-deferred reserve to take on a high claims year
  • Allows business owners to take more control of employer healthcare plans

  Custom Warranty

  Custom Warranty
  Warranties are a valuable tool to distinguish a company amongst its competition and to signal its service or product quality. Whether your company already offers a warranty program, or is considering offering one, SRA brings valuable tools to maximize the benefits of implementing such programs. A custom warranty program designed by SRA develops new revenue streams, leverages an insurance company in order to maximize benefits, and generates goodwill with current & prospective customers.

  Custom Warranty Benefits
  • Provides customers a limited warranty designed to fit unique business needs
  • Helps attract new customers and retain existing ones
  • Builds a tax-deferred reserve to honor warranty costs

  Storage Assurance

  Storage Assurance
  Storage facility owners often pay third-party tenant insurance companies to offer a protection plan to their customers. The Storage Assurance program allows storage facility owners to offer their own protection plan. Through this program, owners can retain up to 90% of the revenue and increase customer retention by offering added benefits to their customers. Companies must develop competitive advantages to secure assets and differentiate from competitors. Storage Assurance is a turnkey solution for storage facilities that allows owners to offer a Tenant Protection Plan and damage waiver.

  Storage Assurance Benefits
  • Eliminates the need to offer third-party insurance products
  • Adds value to existing customers
  • Distinguishes self-storage facilities from competitors
  • Accumulates a tax-deferred reserve to honor claims and earn additional profits
  • Allows owners to retain more than other programs

  Tenant Assurance

  Tenant Assurance
  Property owners rely on the tenant to maintain adequate renters insurance to protect not only the tenant’s personal contents, but to ensure that any damage done to the rental property is covered by the liability policy. Although many property owners require some form of liability insurance, it is nearly impossible to enforce. The Tenant Assurance program was created with this in mind.

  Tenant Assurance Benefits
  • Eliminates the need to offer third-party insurance products
  • Adds value to existing customers
  • Distinguishes rental properties from competitors
  • Accumulates a tax-deferred reserve to honor claims and earn additional profits

  Dental Protection

  Dental Protection Plan
  The Dental Protection Plan (DPP) is a limited warranty program modeled after those used in other industries and applied to specific dental products. Some dental practices offer their own  warranty program. Typically these are not properly defined and miss a key advantage of owning and operating an insurance company — honoring the warranty program with tax-deferred dollars.

  Dental Protection Plan Benefits
  • Choose the length of the warranty and how costs will be administered
  • Define the terms of limited warranty
  • Attract new patients and retain existing ones
  • Build a tax-deferred reserve to honor the dental warranty

  Brand Protection

  Brand Protection

  Provides coverage for the following;

  Death, Disability, &Disgrace: the event that a hired personality for an advertising
  campaign, member of management, or an employee of the insured becomes
  detrimental to the insured’s brand image because;
  a. Death: in case the hired personality passes away during the advertising
  campaign, or a well-known and respected member of management or
  employee passes away
  b. Disablement: in case an accident or illness befalls a hired personality which
  causes a necessary cancellation or withdrawal from the advertising
  campaign; or in case an accident or illness befalls a member ofmanagement,
  or employee of the insured which negatively affects the insured’s Brand
  image.
  c. Disgrace: in the case the hired personality, member of management, or
  employee of the insured commits any criminal act, or any offense against
  public taste or decency, or if any situation or occurrence directly involving
  the person associated with the insured degrades or brings that person into
  disrepute or provokes insult or shock to the community and reflects
  unfavorably upon the insured’s brand image.
  2. Product Recall: the event that any product of the Named Insured is necessarily
  recalled.
  3. Adverse Publicity.

  Dispute Resolution

  Dispute Resolution

  Broad language to provide coverage in the event of suit that does not have coverage in your liability policies

  Subject to all terms and conditions of this policy, the company will pay on behalf of the insured those sums the insured becomes legally obligated to pay as damages and legal defense expenses up to the Limit of liability as set forth in the Declarations of this policy, arising from a dispute.
  The company’s agreement to pay damages and legal defense expenses shall apply only if:

  a. Notice of the legal claim is provided to the insured during the policy period; and 
  b. The insured reports the legal claim to the company within 30 days after notice of
  the legal claim is received

  Audit Assurance

  Audit Assurance

  Audit: any communication, including telephone calls, initiated by a U.S. federal, state, or professional regulatory agency that wishes to audit, examine, review, investigate or verify any item or items to ensure compliance with various tax and/or regulatory and/or legislative requirements.

  The following are insured events under this policy:
  1. An audit as defined by this policy
  Insured must file a claim on this policy within ninety (90) days of the demand by the Insurance Company for the loss to an Insured Event. At such time, the Insured must indicate whether the Insured Event has led to a loss. Payment by the Insured hereunder of the loss due to an Insured
  Event does not bind the Company to pay the claim without an independent determination that an
  Insured Event had occurred and that the Insured Event led to a loss

  Business Interruption – Pandemic

  Business Interruption

  Broadened coverage for events typically not covered in standard insurance policies.

  The following are Insured Events under this Policy:
  1. Direct physical loss of or damage to a location of the insured caused by or resulting
  from the following:
  a. Fire or lightning.
  b. Explosion.
  c. Smoke.
  d. Collapse of a building or any part of a building resulting in the building
  being unfit for occupancy and its intended use.
  e. Accidental discharge or overflow of water or steam from within a
  plumbing, heating, air conditioning or automatic fire protective sprinkler
  system.
  f. Hurricane, cyclone, tornado or windstorm, including rain accompanying
  these perils and flood or storm surge caused by these perils.
  g. Hail.
  h. Earth movement, including earthquake, landslide, mine subsidence,
  mudflow, earth sinking, rising or shifting.
  i. Volcanic eruption.
  j. Flood.
  k. Tsunami or tidal wave.
  l. Wildfire or forest fire.
  Specimen
  m. Epidemic or Pandemic as declared by the Centers for Disease Control or
  World Health Organization.
  n. Impact by:
  i. Aircraft and other aerial devices or articles dropped therefrom; or
  ii. Any road vehicle, horse or cattle not belonging to or under the
  control of the insured.
  o. Strike, riot or civil commotion.
  2. War, including undeclared war, civil war, insurrection, rebellion, revolution,
  warlike act by military force or military personnel, and destruction or seizure of
  property for use for any military purpose. Discharge of a nuclear, chemical or
  biological weapon will be deemed a warlike act even if accidental.
  3. Act of terrorism.
  4. Nuclear reaction, meaning any nuclear reaction, radiation, or radioactive
  contamination.
  6. Loss of access (ingress/egress), meaning physical damage to the premises of the
  insured, or to property adjacent to the premises of the insured, outside the control
  of the insured, that prevents or hinders the use of ingress to or egress from the
  insured’s premises.
  7. Damage to heating or cooling equipment, meaning loss or damage resulting from
  a change in temperature due to damage to heating or cooling equipment.
  8. Closure of transport routes, ports or airports, meaning a closure of any transport
  route, port, container port, airport, transit terminal, truck terminal or railway
  utilized by the insured for the purpose of delivery of materials or services to a
  customer, or acceptance of the insured’s products or services.

  Political Risk

  Political Risk

  Provides damage to property resulting from;

  Direct physical loss of or damage to a location of the insured caused by or resulting from the following:
  a) Civil commotion
  b) Civil War
  c) Coup d’etat
  d) Insurrection
  e) Rebellion
  f) Riot
  g) War
  h) Sabotage
  i) Strike
  j) Terrorism
  k) Action of civil authority that prohibits access to the premises described in the
  declarations, provided that both of the following apply:
  1) Access to the area immediately surrounding the damaged property is prohibited
  by civil authority as a result of the damage, and the described premises are within
  that area but are not more than one mile from the damaged property; and
  2) The action of civil authority is taken in response to dangerous physical
  conditions resulting from the damage or continuation of the insured event that
  caused the damage, or the action is taken to enable a civil authority to have
  unimpeded access to the damaged property.

  Third Party Business Interruption

  Third Party Business Interruption

  Expands coverage beyond utilities, power and communication services that may be endorsements on traditional business income policies.

  Dependent business means:
  a. A business not owned, controlled or operated by an insured, which the insured
  depends on to:
  i. Deliver materials or services to the insured, or to others for the insured’s
  account. Except to the extent defined as an insured event under this policy,
  this does not include any property, utility or business which delivers any of
  the following services:

  (1) Water supply services;
  (2) Power supply services; or
  (3) Communication supply services, including services related to
  internet access or access to any electronic network.

  The following are Insured Events under this Policy:
  1. Direct physical loss of or damage to a dependent business caused by or resulting
  from the following:
  a. Fire or lightning.
  b. Explosion.
  c. Smoke.
  d. Collapse of a building or any part of a building resulting in the building
  being unfit for occupancy and its intended use.
  e. Accidental discharge or overflow of water or steam from within a
  plumbing, heating, air conditioning or automatic fire protective sprinkler
  system.
  f. Hurricane, cyclone, tornado or windstorm, including rain accompanying
  these perils and flood or storm surge caused by these perils.
  g. Hail.
  h. Earth movement, including earthquake, landslide, mine subsidence,
  mudflow, earth sinking, rising or shifting.
  i. Volcanic eruption.
  j. Flood.
  k. Tsunami or tidal wave.
  l. Wildfire or forest fire.
  i. Aircraft and other aerial devices or articles dropped therefrom; or
  ii. Any road vehicle, horse or cattle not belonging to or under the
  control of the dependent business.
  n. Strike, riot or civil commotion.
  2. Civil or military authority interruption, meaning:
  a. The closure of or denial of access to all or part of the premises of a
  dependent business by order of any lawfully constituted civil or military
  authority as a result of:
  i. Danger to human life or bodily injury to any person in the vicinity
  of the premises of the dependent business;
  ii. Damage to any property;
  iii. Defects in drains or other sanitary arrangements but not defects in
  water or sewage;
  iv. Vermin or pests;
  v. Fumes or the escape of any hazardous materials; or
  vi. Any criminal act, but excluding any criminal act by any employee(s)
  of the dependent business.
  b. The seizure, nationalization, confiscation, or destruction of a dependent
  business’ property by order of any governmental or public authority, but
  excluding the seizure, confiscation or destruction of property by a
  governmental or public authority as a result of a criminal act by the
  dependent business.
  3. War, including undeclared war, civil war, insurrection, rebellion, revolution,
  warlike act by military force or military personnel, and destruction or seizure of
  property for use for any military purpose. Discharge of a nuclear, chemical or
  biological weapon will be deemed a warlike act even if accidental.
  4. Act of terrorism.
  5. Civil/political unrest, meaning unrest in a country where the dependent business conducts business operations, including, but not limited to, labor strikes, riot, civil commotion, and usurped power.
  6.Nuclear reaction, meaning any nuclear reaction, radiation, or radioactive
  contamination.
  7. Loss of utilities, meaning physical loss, damage or destruction to, or the failure or malfunction of:
  a. Any electrical, steam, gas, natural gas, water, sewer, telephone, or any other
  supplier of utility service, including transmission lines, supply pipes, supply
  lines and related plants, stations, substations, and equipment of suppliers of
  such services; or
  b. Any satellites, IT or telecommunications (including internet) infrastructure
  or services;
  which were unplanned and beyond the dependent business’ control; and further
  provided that no owner, manager, or operator of such utilities or services is an
  insured under this policy.
  8. Loss of access (ingress/egress), meaning physical damage to the premises of the dependent business, or to property adjacent to the premises of the dependent
  business, outside the control of the dependent business, that prevents or hinders
  the use of ingress to or egress from the dependent business’ premises.
  9. Damage to heating or cooling equipment, meaning loss or damage resulting
  from a change in temperature due to damage to heating or cooling equipment.
  10. Closure of transport routes, ports or airports, meaning a closure of any transport route, port, container port, airport, transit terminal, truck terminal or railway utilized by a dependent business for the purpose of delivery of materials or services to an insured, or acceptance of the insured’s products or services.
  11. Closure of anchor tenant or attraction property, meaning the closure of any
  anchor tenant located in the same retail shopping complex as the insured, or of
  any attraction property located within 2 miles of the insured’s property or
  business.
  12. Computer network damage or disruption, meaning:
  a. Physical damage to or the destruction of a dependent business’ computer
  system;
  b. Erasure, loss, distortion or corruption of data maintained by a dependent
  business;
  c. The denial, restriction or hindrance of an insured’s access to or use of a
  dependent business’ computer system or data; or
  d. The denial, restriction or hindrance of an insured’s access to or use of a
  dependent business’ computer system or data maintained by or within
  the operational control of a third-party computer or cloud networking
  vendor utilized by a dependent business.

  Information on this site is for information and educational purposes only, and should not be construed as tax or legal advice.  Please engage your attorney or CPA for guidance on products and services related to 831(b) plans.