How to Choose the Best Captive Manager

What is it?

A captive is a type of insurance company that protects the risks of its owner. It pays any claims against the owner’s business. Choosing a Captive Manager can be a daunting task. While there used to be only several major captive management companies in America, recently, several new start-up captive managers have entered the industry and are competing for business.

Here are several things you should look for in order to be confident in whom you choose:

Manager Experience and Staff

A successful captive management requires accounting, insurance, and tax skills. A captive manager and his or her staff should be skilled in these areas. Make sure there are at least a few with appropriate training as evidenced by CPA licenses and insurance background. Also, pay attention to the manager’s individual credentials

  • how long has he been managing?
  • How long has he worked in this field?
  • How many clients do they have currently?

Insurance Expertise

With how quickly technology and industry is progressing, it’s important to keep up to date so that the client’s needs are met. A good captive manager will take the time to understand your business’s risks and propose policies through your captive that solve real risk areas of your business. For example, a policy to cover cyber liability would make sense for a large medical billing office that tracks individuals’ medical and financial records, but may not be appropriate for a small transportation company.

Tax Expertise

A captive insurance company is a tax advantageous way to save funds for a rainy day, and can produce powerful income and estate tax benefits to the captive’s owner as well. You should be comfortable with the level of tax expertise that your captive manager possesses and the approach taken with regards to the IRS rules. Some captive managers take a more aggressive approach and follow a standard based on Federal court cases for structuring their captives. Other captive managers follow the more conservative IRS ”safe harbor” standards with their captives.

A captive manager should explain the pros and cons of each approach to the client.

Services

Another important question to ask is if the captive manager offers all the services you need. Your manager should offer the following services: financial, tax preparation, regulatory, underwriting, management of policy, claims, reinsurance, loss control and cash management. If these services are outsourced and some problems arise down the road, no one may take ownership of your needs.

Communications

Hiring a captive manager is literally the purchase of services. As such, make sure that captive manager is easily accessible and responsive. You should have several options for how to reach the manager. You should also make sure you are comfortable with the people that work for the manager. Make sure they listen and are responsive to you.

Independence

It is always a good idea to hire a captive manager that is independently employed, meaning that the manager does not have to make anyone happy but you. Some managers require that the captive funds are invested under their investment platform (for which the captive manager makes an additional fee). This can lead to poorer service and a lack of independence.

Cost

The fee should be fair, meaning it should reflect the value of the services rendered. Compare prices and watch out for those companies who sneakily increase your costs 5% per year. Some companies charge a flat fee for management, and then add on additional fees for tax return preparation, underwriting, policy issuance, local agent, license fees, etc. Other companies provide bundled captive management, with one fee for everything. Be wary of prices that seem too good to be true. Chances are, the company is just trying to lure new business and has not detailed all the fees involved.

Past Performance

Finally, check into the manager’s past performance. The manager is sure to have a track record. Knowing other clients who have used the manager is the best way to find out how good this manager is.