Identifying risks within an organization is half the battle. Mitigating these risks and protecting business assets in the event of a threat requires outside-the-box thinking and reliable support. Alternative risk management solutions have become more prominent in recent years as business owners look to cover their inherent risks without the fear of exclusions.In general, professionals who are proactive in their risk management planning are more resilient when confronted with the aftermath of a natural disaster or other threat.
Alternative Risk Management Tool
Alternative risk management opportunities, such as forming a captive, can solidify this resilience as business owners take a more active role in protecting their business’s future.The exponential growth of captives can be attributed to the primary and ancillary benefits they provide. For example, a company that conducts business in a dangerous area overseas may have insurance to cover the loss of a product, but doesn’t have a policy that covers kidnap and ransom. An oil and gas company that transports its products across the Atlantic may have pollution coverage, but its policy might not cover the loss of a key employee.
Although business insurance policies such as general, product, and professional liability exist in the marketplace, most come with exclusions that can leave business owners vulnerable. With captive insurance, insureds have much more control in what goes into their policies. A truly customizable option rests in a captive insurance company—and Capstone helps everything come to fruition.
Capstone’s turnkey approach provides clients with a true all-in-one solution. In affiliation with The Feldman Law Firm LLP, Capstone has the tax, insurance, legal, and regulatory expertise in-house, necessary to the successful formation and management of a captive insurance company. We work with onshore and offshore domiciles that have proven track records for regulatory compliance. Our company has overseen more than CAPTIVE_FORMATIONS captive projects since 1998 and our affiliated law firm has handled 60 substantive reviews by the IRS, all with positive outcomes. Overall, Capstone has set the standard for comprehensive alternative risk planning, standing with clients at every juncture of the process.
Business owners who have opted for an alternative risk management plan are likely to receive outsourced services or an incomplete package with other captive planning firms in the industry. Capstone’s true turnkey services allow for operating business owners to be fully supported.
The Pitfalls of Underinsurance
The financial burden caused by underinsurance has been proven again and again—businesses that have relied solely on conventional insurance have been compelled to pay high out-of-pocket costs to cover the damage inflicted by unforeseen disasters.
MGA Insurance Brokers recently cited the unfortunate case of a restaurant that caught fire. The building was part of a large heritage estate and was insured for $400,000. The total replacement value was $3 million and given the high level of underinsurance, the owners were left with an out of pocket expense of $2,600,000. They had two choices: rebuild or simply go out of business.
This example mirrors the pitfalls of underinsurance, and how effective alternative risk management can help offset unnecessary costs. Gaps in conventional insurance can be filled with the help of a solid insurance plan; one that will cover all risks and provide ancillary benefits such as better tax planning and lower premiums.
With supplemental captive insurance coverages, insureds have more control over their alternative risk management plan, having broader coverages that cover a larger array of risks. From environmental risk to political risk, and everything in between, businesses are more financially secure if losses occur. Businesses that house sensitive information digitally can write coverages for cyber risks while also having coverage for the potential breakdown of equipment. Non-standard risks can be insured as well, with coverages that may not be found in the commercial insurance market.
A Different Perspective on Risk Management
The transfer of risk is one of the most common risk management strategies among midmarket business owners. Risk transference is the involvement of handing risk off to a willing third party, while risk avoidance is when all exposures to risk are avoided. The commercial insurance coverages available do a good job at covering certain risk when policy triggers occur. But for many uncommon risks, these coverages do not apply, and business owners are compelled to seek other means to pay for losses.
Captive insurance is a fast-growing alternative for business owners who want to transfer risks, but have more control over their risk management plan.
Captive managers in the industry who can’t offer the various services needed to manage a captive insurance company have helped to perpetuate some apprehension toward captives. But when all of the moving parts of captive management are adhered to, captives can be a powerful risk management tool. Having a different perspective on the way risks are mitigated could position business owners for success overall.
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