fdic insurance logo

FDIC Insurance and your Deposits

The Federal Deposit Insurance Corporation (FDIC) “covers deposit accounts (including checking, savings, money market, and certificates of deposit) of up to $250,000 per depositor, per insured bank, for each account ownership category.”

Since the Great Depression, the FDIC has covered bank deposits with an insurance systems that is backed by the U.S. government. It is considered a failsafe, and up until the financial crisis of 2007 – 2008, the program had so earned the trust of the American psyche that some Americans either believed that the FDIC covered all deposits, or they simply didn’t understand the limits in coverage. Many businesses and individuals found out the hard way that their deposits at any one institution were only covered up to $100,000 (the limit at the time) and found themselves unable to recoup the loss during a string of bank runs and failures during the financial crisis.

In response, the Emergency Economic Stabilization Act of 2008 increased that limit to $250,000.

How to cover your deposits

If you are thinking about your personal deposit accounts, read the FDIC’s Deposit Insurance Summary carefully and work with your investment broker and/or banker to come up with ways to make sure your deposits are covered.

Businesses that need to operate deposit accounts with large amounts of money may need to think of some updated strategies. Since the bank crisis of 2008, some cash management firms have sprung up that will help manage large deposits by spreading them out over a large network of banks.

However, those firms take a fee for their efforts, and work in a vast web of deposits and accounts that is difficult to manage.

Businesses that need to have a lot of cash on hand may want to consider a two-pronged approach to cash management that involves smart banking and smart insurance, just in case they ever face a bank failure.

A banking strategy that works for your business

Be smart about where you bank. Work with your banker and investment advisors to develop an approach that keeps your deposits safe and insured. Bank with a mix of local institutions and national banks – making sure they participate in the FDIC program. Know where your cash flow is at all times. Work with the professionals to understand how much risk you face on a day-to-day or month-to-month basis, and consider purchasing extra insurance to cover losses in excess of the FDIC’s guarantee.

This is an area where captive insurance can be very helpful. A captive can cover losses you face from deposits if they are in excess of FDIC coverage during a crisis. And, if the crisis never comes, you’re captive investment is working for you – instead of going out to cash managers and bank fees at multiple institutions.

Talk with your financial representatives, or call us, to see if a captive is right for your company.

image of eggs in basket

Reinsurance – Lots of Baskets for Lots of Eggs

Who insures the insurer? The industry that built its foundation on spreading risk has developed the most advanced strategies to ensure that the risk really is covered. In so doing, the industry invented reinsurance.

The idea of reinsurance is just as it sounds—one insurance company insuring another against potential losses. The Reinsurance Association of America hosts many pages of education about reinsurance, along with training and education to help the uninitiated learn more about how reinsurance works.

Reinsurance in practice

Reinsurance can be best explained by the “all your eggs in one basket” analogy your mother used to caution you with. Reinsurance is one insurance company purchasing part of the risk held by another as a means of risk management – many eggs, many baskets.

There are times when a reinsurer is interested in purchasing only one policy, and there are times when a reinsurer covers a class or category of coverages. This is known as a “treaty”.

Here in the U.S. state regulations – which oversee the governance of insurance companies – stipulate that only 10 percent of an insurance company’s net worth can be on the line, unless the policies are in a reinsurance scheme. Reinsurance companies form a sort of community where risk is shared so that when there is a big disaster, the loss is shared by many, and no single insurer bears all of the burden.

Reinsurance and Captives

The idea of reinsurance is now hard-wired into the insurance industry in the U.S. All insurance companies must participate in a pool of risk, and captive insurance companies are no exception.

Intuitive Captive Solutions (Intuitive) operates Intuitive Reinsurance Administrators, LLC, which was formed to manage Intuitive’s proprietary reinsurance pool, the Colorado Reinsurance Exchange. The CREX is an insurance pool that is exclusive to captives under the management of Intuitive to share risk through a reinsurance contract. By spreading the risk, Intuitive captives are able to share losses and benefit from the financial support of their insurance colleagues while remaining compliant with regulatory requirements.

Listen to your mother: In life, and especially insurance, don’t put all your eggs in one basket. If you are considering starting a captive insurance company, take a very good look at the market and the various risk solutions that are available to you – the reinsurance strategy that you participate in will be critical to the long-term performance of your captive. Scrutinize the index well and make sure you understand how the Index calculates risk and makes its decisions.

If you have any questions about reinsurance or the CREX, please feel free to contact us with questions.

 

Self-insurance – is it worth the risk?

Consider self-insured risk as self-defense in court. If you’re bright and know how to form an argument, there’s a good chance that you can defend yourself in traffic court, or you might hold your own in pursuit of a small claims case if you should ever need to. In fact, hiring a lawyer for either of these instances might cost more than the damages you’d have to pay, or the rewards you might see. One of the most famous pro se cases on record was when Robert Kearns, inventor of the intermittent windshield wiper, sued Ford and Chrysler for patent infringement. The case is immortalized in the movie, Flash of Genius.

If you were a pre-law major in college, and keep up with the law, you may be able to navigate your way through the sale of a home, or a small business contract. Once you get into bigger issues – like a divorce, a large land contract, or any kind of serious law suit – it’s probably time to call a lawyer.

This is how businesses should think about self-insured risks. There are many risks that a business can feel good about self-insuring – risks that aren’t at all likely to happen that can be covered by a slush fund if anything ever did happen. On the other hand, there are risks that are very likely to happen and/or may happen frequently. There are risks that aren’t very likely to happen at all, but if they did, the results would be catastrophic to the business. These types of risks should be insured. But how can you know you have the proper insurance in the first place?

Identifying and insuring self-risk

Sometimes, companies aren’t aware of risks they face. This is the worst kind of self-insured risk as it presents a sort of blind self-insurance. It’s a very good idea to hire a third-party to come in and take a look at your current coverage and identify any self-insured risks your business is facing and make sure your business could handle the loss if they ever occurred.

A thorough look at your business might turn up some surprises. According to the United States Geological Survey, Memphis, Tennessee, is located in an area that’s only moderately likely to experience an earthquake, but if it does, the damage could be particularly catastrophic because of the lay of the land. Statistics like these are the reason you need an actuary around to calculate the likelihood of all the common occurrences and then take a look at all of the pie-in-the-sky eventualities that could potentially happen to your business. Actuaries work with insurance professionals to provide you with a big picture of what all your risks are, and what kind of coverage you should maintain to keep your business well out of danger.

When traditional insurance can’t cover you

When you find you’re self-insuring because you just can’t get the coverage your business needs – or you can’t afford it – consider starting a captive. Captives allow you to write insurance policies that are more specific to the needs of your own business.

In sit-coms and on dramatic law TV shows it’s never a good sign when a character decides to defend himself. Usually, the dramatic device in play is that of someone who believes they are much smarter than they actually are (in comedies) or someone who is under the delusion that they’re smarter than everyone else (in drama). A little bit of self-insurance is good – but avoid comedy and tragedy by knowing when you need some expert help. Contact us if we can provide some interpretation.

 

Captive Benefits

Captives have many befits, from reducing risks to providing companies with financial and tax benefits. Intuitive Captive Solutions (Intuitive) delivers turnkey solutions for forming and managing captives that make the process a low-cost, high-benefit solution.

Reducing risk

Risk management is the primary reason to create a captive. By creating a captive, a company can:

  • Insure the uninsured or uninsurable risks a business faces
  • Protect assets
  • Reduce dependencies to other financial institutions and exposure to systemic risk and economic volatility

Taking control of costs

Companies often find that launching a captive will help them gain better control of costs while providing additional financial benefits including:

  • Leverage against third-party insurers when they submit unjustified price increases or questionable coverage changes
  •  Recapture investment income and manage cash flow
  • Capture underwriting profits
  • Reduce costs, particularly with operating expenses
  • Gain control over selecting the risks to cover, costs, and claim settlement amounts
  • Increase net worth
  • Increase capacity through reinsurance
  • Strengthen the financial outlook for a business

Intuitive’s business is focused only on captives. As such, we maintain a high level of expertise on tax codes, and all other regulatory issues that could impact the captives we manage.  We help our clients obtain  tax befits associated with enterprise risk captives, including:

If you’d like to learn more about how a captive can help your company, please feel free to contact us.

 

About Intuitive Captive Solutions, LLC

Intuitive Captive Solutions works with brokers and firms to create and manage domestic enterprise risk captives. Known simply as “captives”, these specialized insurance companies can help businesses achieve a greater level of security while generating additional tax benefits and revenues for the companies that form them.

Intuitive was founded in 2005 and has grown a strong and loyal client base as well as distribution partnerships with respected brokers throughout the U.S.

Intuitive and Captives

Intuitive captives are available through a national network of high-end insurance brokers.  If your brokerage is interested in learning more about our programs, contact us for additional information about captives.

Visit our careers page to find out about available positions at Intuitive.

Find out more about partnering with Intuitive.

Captive Trusts: Leaving a Legacy

A family-owned manufacturer of electronic components was looking to save on costs while building value into their company as they planned for retirement.

Company leadership had tried a number of tactics, including reductions in insurance premiums. For years, they attempted to reduce premium expenses while pushing for marginally broader coverage. They tried adjusting coverage cap amounts, deductibles, and exclusions at renewal to find additional value, but these strategies weren’t as effective as they were hoping they might be.

Evaluating the company’s options

We worked with the manufacturer to produce a feasibility study. We reviewed their insurance programs to see if a captive insurance company could add the value they were looking for. By creating a captive, the manufacturer would be creating a domestic private insurance company that could sell lines of property, casualty, and liability insurance to the manufacturing company. We found that, in this case, a captive was a very good solution for the company.

We also recommended that the manufacturer make several adjustments to the existing commercial insurance programs they had. This created immediate cash savings for the manufacture by lowing their property and causality premiums. The captive then issued a supplemental commercial insurance policy to the manufacturing company in exchange for a fully tax deductible annual premium of $1,190,000.

Adding value, reducing risk

Once the new strategy was in place the manufacturer saw immediate benefits, and began to see the long-term potential of their new investment. By creating the captive, they were able to:

  • Create a profit center where there once had been only unfunded self-insured risk
  • Reduce the cost of third-party premiums by 8%
  • Reduce the company’s income tax rates and lowered their income tax by nearly $475,000
  • Create the potential for additional wealth for the owners – and their families

Now, the family has a new business that generates a net profit budgeted to exceed $3 million over the next six years. The captive’s profits will be distributed to its owners at more favorable tax rates. If the manufacturer does have a claim they can now receive reinsurance payments on losses that would have previously been self-insured.

All of these results were welcomed by the owners. But there was one additional benefit that meant a lot to them: Captives can also be owned by the next generation as a trust. The owners, looking at the company they’d built with the next generation in mind were very happy to know that their investment could be handed down safely.

At Intuitive we consider our clients our long-term partners. We’re working with clients throughout the life of their company – from first major investments to the creating a legacy for the next generation. If we can help you build your company’s future, please contact us.

Captives Explained

The Internal Revenue Service provides guidelines for how insurance companies known as “captives” should be taxed. The Cornell University Law School’s Legal Information Institute provides specific language about the code along with notes and updates that have been made to it.

The father of captives

Frederic Reiss

Frederic Reiss championed captives throughout his career.

The International Insurance Society’s Insurance Hall of Fame is a place where industry leaders are honored for their work. One of the hall of fame’s laureates is Frederic Reiss, an insurance broker and Harvard alum who invented the captive in the 1960s, and promoted captive insurance for the remainder of his career. Reiss mainly promoted the offshore captive, and is often referred to as “the father of the captive” – he is just as often credited with putting Bermuda on the investor’s map.

Reiss brought into vogue a new way of looking at insurance that would help businesses gain access to insurance they needed but couldn’t buy – or afford — on the market.

Intuitive Captive Solutions (Intuitive) works with the type of domestic enterprise captives as outlined by the IRS, mainly U.S.-based small property and casualty captives that help mainly medium-sized businesses take advantage of the benefits offered by captives.

Putting captives to work for you

As Reiss recognized in the 1960s, companies sometimes need additional options for insuring risks – and a pool where that risk can be shared. He was focused on big companies, but since then, the benefits of captives have been delivered to mid-sized businesses who want the same types of advantages. Domestic captives offer an opportunity for your business to get additional coverage, lower tax rates and lesson the burden of deductibles while creating an opportunity for investment growth and smarter wealth management.

Reiss’s company, International Risk Management Limited, was the first company to sell captives. His place as an innovator in the insurance industry is secured, and his idea continues to help companies big and small. See how his innovation can work for your company – consider launching a captive to help your business grow, and contact us if we can provide you with answers to some of the more complicated questions that arise while you’re reading the IRS code.

contingent business interruption

Contingent Business Interruption: Managing Risk in the Supply Chain

Supply chain management and supply chain risk management are two separate but equally important ideas when the topic is contingent business interruption. Supply chain managers are focused on optimizing the supply chain and lowering costs, supply chain risk managers are looking at the supply chain and extrapolating the potential costs to the business if the chain experiences interruptions.

Do you have a professional supply chain risk manager on your team?

A whitepaper from Crain’s, Contingent Business Interruption: How to assess supply chain risks, secure coverage and ensure claims are paid provides some key insights and strategic points for anyone who is concerned about their supply chain. The paper notes the 2011 Tohoku earthquake in Japan and flooding in Thailand in the same year that disrupted business globally, using these examples and others to caution businesses about disaster planning, the need for adequate insurance, and the nature of coverage traditional insurers are willing to provide as they strain under the pressure of so many recent disasters.

Indeed, the frequency of natural disasters and the growing cost of dealing with these disasters is becoming a serious issue. A recent report published by the U.S. Government Accountability Office (GAO), notes that, “Disaster declarations have increased over recent decades and the Federal Emergency Management Agency (FEMA) has obligated over $80 billion in federal assistance for disasters declared during fiscal years 204 through 2011.” The costs to private insurers is proportionately high, causing coverage premiums to increase – while reducing coverage options for business.

Your self-insured risk

Even if you believe you’ve thought through every scenario, disaster can impact your business. Now is a good time to reassess your coverage and seek out some advice on what type of risks you face. The landscape has changed over the last few years, and you should know where you stand.

Most importantly, you should know and understand if the contingent business interruption insurance you carry is enough. If production of a parts factory in Malaysia were shut down for six months, what would the impact to your business be? Is your policy language such that you could collect for the damages caused to your business? And is your insurer willing to continue providing your business with the same type of insurance you’ve always had? Talk with experts to be sure you’re asking the right questions.

Covering your risk

We are often contacted by clients who want to evaluate or re-evaluate their risks as they look deeper into their supply chain. We work with them to understand how their supply chain is structured, and we bring in experts who can help determine where the greatest risks are. When appropriate, we help companies develop a safety net with a Captive insurance company – an insurance company they own that can insure them against eventualities like a flood halfway around the world that impacts their supply chain. If we can help you understand these issues, please feel free to get in touch.

its our money too

CREX – Share the Risk

When we hear commercial underwriters pose this rhetorical question to their potential customers:  “What would we do if it was our money?” we cringe. At Intuitive, it is our money. And that’s what sets us apart from the pack.

We’re not a massive corporation. We’re a group of experts who work with some of the largest independent agents, accounting firms, business and tax attorneys in the U.S. to ensure our partners get the best information and services available. We believe in what we do, and our investment dollars are right there with yours.

CREX: A unique solution for sharing risk

We formed Intuitive Reinsurance Administrators, LLC to manage a proprietary reinsurance pool known as the Colorado Reinsurance Exchange (CREX). CREX is exclusive to captives managed by Intuitive, and allows clients to share risk through a reinsurance contract. By spreading the risk, our captives are able to share losses and benefit from the financial support of their insurance colleagues while remaining compliant with all regulatory requirements. We not only manage the exchange, we’re part of it, ensuring the structure, management, and performance of the exchange, and most of all, its integrity.

Our investment, together

We are always concerned with the integrity of what we do, we are committed to flawless execution on behalf of each client, and we are invested in the financial performance of each of our clients.

Contact us today to find out if your company can benefit from forming a captive insurance company.

 

A regulatory nightmare: Takeda and suits against its drugs.

Regulatory Nightmares

Regulatory suits and high punitive damages are a constant reality in the medical business. In early 2014, Takeda Pharmaceutical Co., Ltd., was hit with $6 billion in punitive damages when a U.S. Federal Court found the company in the wrong for concealing cancer risks associated with a diabetes drug it manufactures. Eli Lilly and Co. – Takeda’s co-defendant in the case – was ordered to pay $3 billion in damages.

It’s not just the goliaths in the medical industry who get hit. Regulatory suits and punitive damages awards can be devastating to midsized businesses and medical practices. From makers of medical instruments to the doctors who use them, defending the suits takes a huge amount of time and money, and settling them can be just as costly.

Making it through the storm

Consider the industry you’re in and the potential your company has for facing a regulatory suit. Are you prepared to battle a government agency? Do you even know a law firm that specializes in defending cases that you could be named in? And when you think of what a suit like this might cost your business – in lost time, bad PR, and dollars – do you have an idea of what kind of insurance you have to cover it? Many policies contain inadequate coverage and/or very high deductibles.

Think about how regulations may have changed since you worked with your insurer to write that policy – or how your company’s role in the industry may have evolved over the last few years, are you covered?

Is your business covered?

Take a really good look at your situation, and work with your insurance provider to see what kind of coverage you have. If you feel your company is vulnerable, consider starting a captive insurance company – a captive can help cover the deductibles if you’re ever under investigation. You can also purchase insurance that’s more in tune with your industry and the specific needs of your company. For anyone in a highly regulated field, this is a good idea.  We’re happy to talk with you about options and help you find out of a captive is right for you.