ALTERNATIVE RISK

TRANSCRIPT

[Bruce Silverman] Hey everybody, welcome into another edition of "Managing Risk for Tomorrow Today" with Adam Perea. I'm Bruce Silverman. Adam is the Vice President of Elite Risk Insurance. We've got a lot of things to talk about today. And we're gonna get to those in a moment. But first, if you want to get in touch with Elite Risk, Victoria insurance, and Adam, here's the way you do it. 800-979-0176, the email is aperea@eliterisk.com. And the website is vclrisk.com. Adam, welcome in to your podcast, really excited to topic and get right into the topic -and that is alternative risk for small and mid size businesses. First and foremost, what is alternative risk?

[Adam Perea] Thank you, Bruce, I'm excited to be here. Alternative risk really is an opportunity for any business of any size. And we focus a lot on the small to midsize businesses have another way to manage their insurance or risk management program gives them options and opportunities that are outside of just going to the traditional carriers working through your brokers and you know, just trying to get the cheapest quote for the the insurance you're looking for. So alternative risk gives you different ways to purchase insurance that your business needs that may or may not be available in the commercial market, or that insurance think is overpriced in the commercial market. 

[Bruce Silverman] Before we get into more specifics, one of the things I want to ask you about in terms of this alternative risk is how do you do that risk assessment? Before you really get into what policies will best benefit a smaller midsize business, How do you evaluate what their needs are?

[Adam Perea] Yeah, that's a great question. And that really is kind of one of the first or second conversations we have. And that's having a an in depth discussion with an insurance advisor, whether it be a risk manager, internally or somebody they've hired externally, maybe their broker, their current insurance broker, and really just talk through what pain points that they're having, right? Where are their struggles. So it does mean no good. I tell people all the time, I can build you a race car, and I can build you a great race car. But if I don't know what kind of race car you're looking for, doesn't matter how great a race car I build, right? If I build you a drag car, but you're looking for a NASCAR, I get to build you a great car. But that's not what you were looking for. So that's really what I start with is, you know, sit down and having that conversation. Where are your pain points? What are your goals? What are your objectives? Are they long term? Are they short term goals? Really, what are you looking to try to do?

[Bruce Silverman] So once that is established, what's the next step for a business?

[Adam Perea] Most of the time, we then do a data collection. So we have them send us all the as much information as they can give us about their current insurance program, their current risk management, you know, we get copies of policies, loss runs, you know, different parts of their business that you know, if they have trucking or if it's GLPL for nursing facilities, whatever it may be, we collect all that necessary data. And that's where we start to do a deeper dive and analysis to say, hey, where can we help with your current program? And where can we wrap around and help make a more complete risk management program?

[Bruce Silverman] Do you find that the majority of the businesses and business people that you work with really don't have an idea of what their insurance needs are? So they really need to lean on you lean on their agents?

[Adam Perea]  You know, I think a lot of times insurance a I've never met anybody that says they pay too much for insurance, right? So it's our not pay enough for insurance, right? So it's always doesn't matter how much they pay, it's too much. So a lot of the times what they're doing is relying on their agents to make sure they're getting the minimum coverages either to satisfy any governmental agencies contracts, whatever it may be. That's, in most cases, what they're trying to figure out, hey, I have to have this insurance to operate. So just get it for me as cheaply as possible. So, you know, there's some insurers that will take ownership of their program and really learn about it. But I tell the insurance, you continue to run a successful business. Let us take this for you and help you with it. You don't need to pay attention to this and know every piece of it, it's important they understand it. But you know, let us handle that for it for you and help you along the way.

[Bruce Silverman] Let's move along a little bit captive and captive options. These are two areas that businesses really need to concentrate on. So I'm going to allow you to explain this, because it is something that is very, very important, very vital for every business.

[Adam Perea] Yeah, you know, the captive insurance industry has been around for a number of years. And they can be excellent risk management tools and alternative risk funding mechanisms for small to mid sized businesses. Historically, they've been used more by larger companies. But what you're really looking at is, is creating that captive insurance company to fill out your risk management program. You know, just a few years ago, we ran into a black swan event COVID shut down the entire world, nobody really saw anything of that coming. And nobody was prepared. There was a lot of mass confusion in the commercial market of, you know, do I have coverage? Are we going to provide coverage? You know, is this a valid claim? Those insurers that had captive insurance companies, well run captive insurance companies for years, had had surplus built up. And they had business interruption coverage, that they were able to file claims that saved their businesses in the short run, maybe provided a bridge between PPP loans, or, you know, governmental assistance, or maybe some of them didn't need it at all. But they were able to go to their their captives. And to give credit to the captive industry, we saw the loss ratios, you know, go way up in the captive industry, because people were recognizing and utilizing this as insurance coverage they had. So captives are a great tool, you might not need it every year. And to be honest, when you buy commercial insurance, you hope you don't need it every year either, right? I buy home and auto, I hope I have to make a claim on them ever.

[Bruce Silverman] HIt's one of those really strange products that we buy, we buy it because we don't ever want to need it. Right, and we don't really want to pay for it. But we're really happy we have it just insurance in general, whenever a situation comes up, that we need the coverage to kick in. It's it's one of those things where if you pay your premium, and you don't use it, it's at the end of the year. And then it's also wow, I just spent that money and I didn't use it for anything. It's kind of a kind of a strange way that we spend money and protect ourselves.

[Adam Perea] Right. You know, I know, you know, life insurance is a big example. Right? You never want to use that. But those around you are glad you had it when you need it. But yeah, you know, with captives, there's different types of captive setups, you know, you can look at protected cells, segregated cells, render captives, standalone, captive single parent captives, a lot of these mean the same things, they just have different terminology for them. But you know, figuring out the right captive structure for you is part of what we do we look at what you're willing to do, you know, cost versus control, how long you're going to have it what your intentions are. So there's a lot that goes into choosing the right captive model. And then even equally as important is how do you design it? How do you structure that to make sure that you're not duplicating or replicating coverages that you already have to make sure that you are buying coverages that you need? And those can be coverages that you said that you deem too expensive in the commercial market? Because you don't want you don't want to pay those high premiums. And then at the end of the day, you say, Okay, well, then we have, we didn't have any claims. So who gets to keep all that underwriting profit, the insurance company, so you're getting double penalized and punished for having good risk management? Right. So if I don't have any claims, I don't get any benefit from it. And I didn't have any claims the insurance company makes a profit. If I do have a claim, the insurance company says great, we'll just charge you more next year to get our money back. So that's why you know, a lot of folks I hear they said we don't like insurance. Well, that changes their mind when they become the insurance company. 

[Bruce Silverman] Blended solutions. This is where you get to be really creative in taking care of your clients.

[Adam Perea] Yeah, so what that allows us to do is have clients that in the small The midsize business sector, I'd say it's it's folks that typically have less than $2 million in annual premiums they're paying. And traditionally, if you're north of that, you can get the big carriers to let you participate in the risk, right? Take large deductibles take large reinsurance positions, those are certain things that that just aren't available to that small to mid sized business.

So what we've allowed our clients to do is if there's lines of coverage that they feel they're they have good control around, and they want to participate in that risk, they can write the policy through Victoria. And then they can start a captive and reinsurer as little or as much as they are that they want or that they're comfortable with, to help lower what I refer to as their total cost of risk. So we're not trying to get them cheaper premiums, we're not trying to get them cheaper coverage, what we're doing is lowering their overall spend. And that can be accomplished by taking on or what some refer to as having skin in the game.

So as a carrier, we're happier if you're taking on a large piece of that risk, because you're comfortable with it. So that's where the blended solutions are work very well for large companies. But it's kind of been missing for that small to mid size group where they want to take control, they want to participate in their risk. But when you start throwing things in there like collateral, whether it's fully collateralized, GAAP collateral rolling, stacking collateral, their premiums are so small that starts to whittle down the financial gain from that. So what we do is make that more cost effective and allow them to take control and participate without a lot of those excess fees.

[Bruce Silverman] He's Adam Perea, Vice President of Elite Risk Insurance,  800-979-0176, email is aperea@eliterisk.com. The website is vclrisk.com. Adam, before we finish up, I know there's an article that you are interested in that you wanted to share with the audience because it is very relevant to this subject.

[Adam Perea] Yeah, you know, I we just start getting ready to publish an article with a captive manager partner that we work with. And it's really covers everything that we've talked about today. It's just titled alternative risk in the small to mid size business. And it gives a little bit more of a detailed analysis of what the opportunity and options are for those small to midsize businesses.

[Bruce Silverman] This is all about the knowledge and the information that Victoria insurance and Elite risk insurance wants to share with clients, with prospective clients, with the industry at large. Again, vclrisk.com is where you can get a lot of this information and a whole lot more. The 800 number is 800-979-0176, Adam Perea if you want to reach out to him - aperea@eliterisk.com.  This is part of a larger podcast series that the folks at Victoria and elite risk are putting together to help the insurance industry to help their clients prospective clients. Industry is a very complicated, very complicated industry. And not only that, it's changing all the time, Adam, and you guys really need to roll with the punches. You mentioned COVID Being a Black Swan, but every time there is a change in the law, you guys have to adopt and then go back to all of your clients and make sure that they're properly covered.

[Adam Perea] That's correct. You know, the whether it be the government or the IRS constantly changing regulations or wanting to change regulations. You know, we stay on top of that. We have a whole team that is dedicated to that. So we make sure that we're providing the best solutions for our clients.

[Bruce Silverman] He is Adam Perea. This is "Managing Risk for Tomorrow Today" with Adam Perea. I'm Bruce Silverman. Thanks so much for being with us, folks. Again, this is part of a larger series. So any questions that you have in regards to insurance - this is the forum to get it. We'll see you next time on Managing Risk for Tomorrow Today.