You’ve forged ahead. You have demolished any ambiguity surrounding your risk management program and uncovered a new tradition of protecting what you’ve built. You, my friend, have formed a captive insurance company. And for this, we pay homage.
Forming a captive requires staying informed about changing regulatory requirements, industry evolution, and common pitfalls in the management of your captive. When you decided to insure your risks with your own captive insurance company, you likely enlisted the help of someone who was knowledgeable—a professional who, at some point, had formed a captive previously. He or she gave you information on captives and stuck to a comprehensive curriculum, betting on your tenacity to get this thing done. All-in-all, it was a good match; a licensed CPA or other financial professional who could support you from your captive’s initial formation all the way through its management. Audits? No problem. Claims? Not an issue. This person made a point to sell you on his or her capabilities in the management of your captive. You did your due diligence in seeking out a qualified confidante and advisor who had your best interests in mind.
And therein lies the rub: your captive manager may have disclaimed tax and legal support in the fine print.
Researching Captive Managers
Some self-proclaimed captive managers really believe their own hype, contributing articles to popular news publications, traveling to far-off networking and industry conferences, and convincing business owners to form captives with their help. At first glance, these guys seem like the real deal; knowledgeable, assertive, confident. They provide seemingly factual information about the captive industry, tax benefits, domicile selection, and commentary on changing laws.
But the captive world is full of marketers having web sites purporting noteworthy expertise and exceptional talent. Upon even the most cursory examination, a defrocked lawyer or CPA is exposed. These guys aren’t legally allowed to practice the trade due to judgments against them for selling tax shelters, practicing without a license or other misdeeds. We know of several captive managers that operate out of a spare bedroom and are one-person operations. They operate under the guise created by their online personas. While offering “turnkey services,” the client contract omits all responsibility for tax, accounting, actuarial and insurance work. Even banks offering captive services maintain only the clerical services needed for the captive. They do it for tens of thousands of dollars a year.
These kinds of situations are becoming a common entanglement for business owners who have sought out a true and effective alternative risk management tool. So what is a captive owner to do? Research.
Look at business addresses. Do a background check. Ask the right questions.
Dropping your captive manager in exchange for true turnkey services mirrors your commitment to protecting your business and yourself. Making sure your support system is up to par is a justice that only you can bring about. It’s better to do it now, rather than later when you actually need that support to kick in.