Captive Insurance for the Retail Industry

The retail industry is evolving quickly—with the emergence of more robust digital platforms (apps and mobile-friendly sites), more consumers are buying big with the use of their digital devices. According to a recent report by the U.S. Commerce Department, sales on the web are reaching $395 billion. Brick and mortar retail establishments are also still seeing their fair share of foot traffic and sales. In short, the retail industry is a huge part of the economy, selling finished products of all types to end-users.

The U.S. leads the pack, having 76 of the world’s largest retailers based there. Additionally, the U.S. retail sector employs 42 million people and contributes $2.6 trillion to the GDP.

Despite its contributions, the retail industry continues to grapple with risks such as theft, cyber-attacks, and product recall. Shoplifting and other fraud activities cost retailers upwards of $50 billion annually. And there are limited options for retailers to mitigate these costs because the risks are often excluded by commercial insurance policies.

Forming a captive insurance company can help mid-market retail businesses offset the cost of a loss event. By filling gaps in coverage and promoting better financial efficiency with tax-advantaged premiums, retailers can retain more of their profits.The animated video below explains.

Watch the video:

Have questions? Call Capstone at 1.800.500.3190, or submit your information via the form. One of our experts will be in touch. We’ll discuss how we can help you or your client form a captive insurance company to insure the risks of your retail business.

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Fund Losses, Fight Retail Risks

Cyber risks have been cited as having a major impact on U.S. retailers. According to a recent poll by research firm 451 Research, more than half of businesses (1,100) said they had experienced a cyber-attack at least once. And half of those businesses experienced a cyber-attack more than once. A representative from the firm said, “Unfortunately, organizations keep spending on the same security solutions that worked for them in the past, but they aren’t necessarily the most effective at stopping modern breaches.” This can mean that consumer data, proprietary information, inventory data, and more can be compromised, even when the right precautions are seemingly put in place.

Having cyber and other necessary coverage underwritten in a captive insurance company ensures that if and when a cyber breach or other cyber-event occurs, the affected business can bounce back more readily. This means that sensitive data can be recovered. Reputation management can also be addressed with the right policy inside the captive. In short, tailored coverages that are specifically designed for the business ensures that policy exclusions are kept at bay. This is in addition to the financial benefits of captive insurance.

Here’s a sample of various other coverages that may be written through a captive insurance company:

  • Theft
  • Cyber-Attacks
  • Product Recall
  • Regulatory Changes
  • Labor Concerns
  • International Risk
  • Damage to Inventory

So here’s how it works:

Retail companies pay premiums to the captive insurance company, just as they would to a commercial insurance company. Funds accumulate inside the captive and can fund losses in the case of a loss event. IRC 831 b captives offer a 0% Federal income tax paid on the captive’s underwriting profits.

Moreover, if there is undistributed earned surplus, i.e. there are no claims made, the funds can be distributed as a dividend or as a secured loan back to the operating company. Premium costs are lower, because in the commercial markets, “special” coverages tend to be more expensive. These coverages may not be available at all commercially. Business owners have better control over their risk management efforts, more comprehensive coverages, and a more advantageous planning solution.

Bottom line: Captive insurance for retail companies is a powerful alternative to commercial insurance alone. Savvy business owners in retail who form their own captive insurance company can count on a new level of risk management, as they combat risk in such a competitive industry.

Attorney-led Captive Planning for Retail Businesses

Capstone is the most integrated and largest outsourced provider of captive insurance services for the U.S. middle market. In association with The Feldman Law Firm LLP, Capstone offers platinum level attorney-led captive planning and administers property & casualty captive insurance companies that provide alternative risk financing services throughout the U.S.

Now in its CAP_YEARS_SUPER year, Capstone provides attorney-led, turnkey services usually under a joint engagement with The Feldman Law Firm LLP, to businesses in the retail industry, and many others.

Unlike most other captive management companies, Capstone’s turnkey service providers do not disclaim tax and legal support. The company has an award-winning track record for standing with clients in the design, implementation, ongoing management, and defense of their property & casualty captive insurance programs. Capstone has successfully administered and successfully managed over CAPTIVE_FORMATIONS captives since 1998.

The Feldman Law Firm LLP has experience in more than TAX_CONTROVERSIES tax controversies, all to successful conclusions.
Capstone's staff of insurance professionals includes Chartered Property & Casualty Underwriters, Associates in Risk Management, accountants and administrators, in addition to the affiliated The Feldman Law Firm LLP's tax, corporate, financing and regulatory lawyers, and outside CPAs, risk managers, property & casualty professionals, and actuaries.
Together, this team offers middle market companies the most comprehensive risk planning solution available.

Learn More About Captive Insurance