Captive managers should consider leveraging powerful players outside the industry, says Jim Weynand, chief revenue officer of Check-6 International.
As captives continue to undergo heavy scrutiny, forward thinkers in the captives space are focusing on the importance of the feasibility study to look at all aspects of the captive and validate its economics, viability and risks-shifting. Documenting the non-tax purposes of the captive goes a long way in showing the Internal Revenue Service that the captive in question is founded on concrete business risk assessments and economics, rather than looking like a tax shelter.
Partnering with companies whose specialty is operational efficiency and increased safety can help the captive uncover risks never before realised, because insurance professionals use the same pair of trained eyes to look for the same risk(s) to underwrite.
Make sense? You would never publish a writer’s work without having an editor review the copy. You need a fresh set of eyes for reviewing content in order to catch errors, find missed opportunities and tie the story together. The story of the captive manager is to underwrite more than one single-line for the health of the captive. This single-line writing tends to happen most when the captive is promoted by an insurance broker who is solely focused on workers’ compensation, for example.
“Partnering with companies whose specialty is operational efficiency and increased safety can help the captive uncover risks never before realised.”
Captives are in the business of distributing risk. The more risk a captive underwrites, the better the economics of the captive, making the captive more efficient and increasing its health. If a broker is focused on selling workers’ compensation coverage, the broker will not worry about advising on other potential risks in an organisation. “If I don’t sell that coverage, I won’t worry about that coverage.” That mentality can cost an organisation’s captive when it comes time for an audit.
A fresh pair of eyes
Where does one get a fresh pair of eyes that not only will reveal hidden risks within an organisation—resulting in a healthier captive—but also has the experience of bringing solutions to the table that will help reduce those newly unearthed risks and ensure that claims would be kept to a minimum due to a closed-loop process that keeps operations running safely and efficiently while holding leadership accountable?
Here enters the world of change management. Programs such as Six Sigma or Lean have been employed and can be effective for a finite amount of time but they are short-term phenomena and lack the cultural support to sustain effective change within an organisation. Partnering with a solutions provider that is accustomed to and thrives in high-consequence environments brings the assurance that all captives look for when looking to mitigate risk while reducing their number of claims.
How will a change management consulting service with zero experience in insurance identify risks that have not been identified by insurance professionals, either because of lack of motivation by a broker or simply overlooked in the assessment?
The answer is that these solutions providers have a completely different perspective from that of insurance professionals. When they evaluate a client’s organisation, they are not looking for ways to insure risk. They begin with an eye on creating a culture of efficiency. The approach of increasing efficiency, effectiveness, safety and looking to increase cost savings, yields risk as a symptom of inefficient operations. This type of unorthodox partnership, between captive manager and consultant/solutions provides a win-win for both parties and more important, the client.
How? On the front end, more risks are identified and more lines of risk are written, which in turn gives the captive greater risk distribution and less chance of audit and, of course, greater tax incentive. On the back end captives have assurance that by having their operations tightly tuned by proven solutions providers, they will have fewer claims to take out on the pool and they will gain greater tax incentive.
As the metrics to this newly formed strategic partnership come in, more businesses will push their captive managers to provide these types of partnered solutions in the coming years.
Jim Weynand, Chief Revenue Officer, Check-6 International
Check-6 International, North America, Jim Weynand, Insurance, Captives, Risk management, IRS, Cayman Islands