Captives can help solve global uptick in claims
An increase in the number of global insurance claims is putting increasing strain on the world of insurance – but captive insurance could offer a solution.
That’s the view of David Liptz, CPA Principal at Liptz & Associates. He pointed out that a worldwide population growth along with climate change, is resulting in more insurance claims - in terms of frequency and severity - driven by many factors including wildfires, hurricanes, and flooding. These, in turn, trigger other claims including supply chain interruptions, and shortages of food and power.
“The number of claims that are coming into the commercial marketplace are very expensive. We see some carriers thinking that there's no way they can pay everything. This is what business owners are also thinking across the world.”
According to Liptz, this creates an opportunity for the captive market. As bad as all these claims have been, they can also become a catalyst for entrepreneurial solutions.
He said that the issues lie in convincing more entrepreneurs that they need to focus on how to finance the rainy days.
“The challenge of life as we know, it is just becoming much more complex and challenging, because I think primarily, the number of people on this planet is growing so rapidly that these problems are just more apparent.”
Liptz also thinks that the Internal Revenue Service (IRS) in the US needs to realise that they don’t have all the answers, as at present they are putting up impediments to the use of captives, rather than encouraging their use.
“The captive message, the way it's communicated, needs to expand,” Liptz explained. “There remains a lot of business owners that are unaware of it. I still come across people that really have never heard of captives or self-insurance. But if they go on the internet, the first thing they see is negative. So, the whole educational process, from CICA, the VCIA, ICCIE, and others needs to be on the wide range of economic and business advantages [of captives]. It comes down to education to get the message across.”
Liptz stressed that businesses need a way to fund catastrophe losses, big or small, especially when they face high hurdles on how to keep their business going. Getting outside financing can take a long time. In contrast, a captive means the money is set aside for the rainy day.
Liptz said that his company takes a holistic approach to a captive and all the family’s business entities involved, working as a team with their other advisors to meet the goals of captive owners. He stressed that it’s important not to work in a silo and instead to constantly talk to clients and at least be in the loop of everything that's going on.
“It's important that we know what's going on so that we can bring questions to the table for everybody to think about. This holistic approach of looking at everything from different points of view involves asking probing questions about what they're really trying to accomplish. Our holistic goal is to try and create some more time for the family, because the only thing you can't buy on Amazon is “time.”
Looking at this year’s CICA Conference Liptz thinks that 831Bs will be a topic of conversation as the federal government and the state governments are conducting numerous audits on these. He pointed out that 831Bs are still facing proposed regulations that are still undecided and the regulating bodies have not provided any guidance to the captive insurance industry and professionals.
“The federal government in the United States continues to give us very, very little guidance on what to do, and just keeps us guessing, except when it comes to a court case that they rule against the taxpayer. But I am hoping that the conversation can be switched to how better to utilise your captive for a variety of ways economically."
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
