ALTERNATIVE OPTIONS

TRANSCRIPT

[Bruce Silverman] Hey everybody, welcome in once again a another episode of "Managing Risk for Tomorrow Today" with Adam Perea. I am Bruce Silverman, Victoria insurance and Elite Risk Insurance, putting this podcast series together. Adam, we had a great conversation previously about small and mid sized businesses and alternative risk for them in terms of captives and captive options. Today, we are going to tackle a much larger segment of the business world. And that is large options and agency options. So before we even get to that, how are you?

[Adam Perea] I'm doing well. Thank you. I appreciate it. 

[Bruce Silverman] I'm so glad we're doing this. 800-979-0176 is the phone number. Adam's email is aperea@eliterisk.com. And the website is vclrisk.com. So let's jump into this conversation. We've tackled small and mid sized businesses, and what their needs were the needs of agencies and larger businesses much must be a more robust policy and must mean that there's more that needs to be involved in putting them together.

[Adam Perea] Yeah, you know, I mean, we spent a lot of time focusing on on the smaller captives, some refer to them as 831 be kept as micro captives. But, you know, just as important and beneficial to companies is the larger captives. And when you have such a large program, there is many more things that come into play, right? Larger loss limits, TPAs availability of coverage, there's just so many things that come into play that there's still a lot of opportunity for you to grab, control and participate in those larger risks.

[Bruce Silverman] So you mentioned challenges, what are some of the challenges that the larger businesses and what a larger business needs?

[Adam Perea] Yeah, so really kind of capacity is a big thing. And availability of coverage, you know, as, as we see these like in the trucking industry, nuclear verdicts coming out, and they're getting larger and more frequent. As we see the reinsurance market shifting and carriers shifting, you know, there may be a market segment where you have five or six carriers competing one year, and the next year, you only have one or two, and then the next year, there's nobody they've all pulled out. So you know, it's constantly shifting. But as their capacity shrinks, they have a smaller market that they can serve. So really, what they start to look for is, hey, if you're willing to put some skin in the game, and we talked a little bit about that on the last episode, they're more prone to work with you. So if you say, hey, I'll take on 10% quota share of the risk, or I'll take on, you know, the first 25%, whatever it might be, they're more apt to work with you. Because if you're willing to put skin in the game, they'll extend some coverage to us. So so there's a lot that that factors into it.

[Bruce Silverman] So let's let's talk about this skin in the game concept. You mentioned it during our conversation about small and mid sized businesses, but larger businesses, there is more business, there's more volume, more customers, more employees, there's more of a lot of different things when you start talking about larger businesses. What exactly do you mean by those businesses putting skin in the game?

[Adam Perea]  Right? That's a great question. And really, it's, you know, let's take a traditional kind of general liability policy, you know, they're they're commonly one two policies, 1 million per occurrence, 2 million in aggregate. Well, you know, if you're having trouble finding coverage and what we call first dollar coverage, then you know, you can start to say, Hey, I feel good about this. We have good control over our risk management policies, procedures, I'm willing to take the first half a million dollars of every million dollars. So now, instead of a carrier being on the hook for a full million dollars on a full limit claim, the insured says I'm so confident I'll take the first half a million of that million, so right so you're kind of in that frequency layer. So you can have a $4 million hit, and the carrier pays out half a million, the insured pays out half a million. Or you could have a bunch of claims, you know that that are smaller and say, you know, multiple $10,000 claims, and the carrier never gets hit, and the insurance says we'll pick those up. And we'll pay for those. So you know, frequency losses versus the big severity losses.

So you start to insulate the carriers, and the insured says, Hey, you're gonna give me a premium discount, or, you know, schedule credit premium. And either I'm going to keep that money in my company to pay for those, or I'm going to form a captive insurance company, put that money in the captive and have my captive, take those risks. And there's many times where a carrier may make that a prerequisite that you have to have a captive, right. So in order to insure under a reinsurance contract, which is between two insurance companies, you got to have that second insurance company. So by putting skin in the game, you are guaranteeing your own funds or putting up your own funds, saying I will cover those losses in a specified layer.

[Bruce Silverman] Beyond having lower premiums, and obviously feeling confident to be able to take that risk and have the skin in the game. What other benefits are there for larger businesses? To put skin in the game?

[Adam Perea] Yeah, you know, and that's a great question. And one that I get often is, you know, we start with, Hey, we're not just trying to get you cheaper insurance, we're trying to get you a better risk management program. And control, right, a lot of business owners like the control so you can work with the carrier, whoever's issuing the the main policy, to say, hey, if I'm going to take the first $500,000, I want to use my TPA, I want to use my claims, guys. And they liked that control, because you often can get with an insured that says, the insurance company doesn't care, I file a claim that they might think is fraudulent, or, you know, not viable.

But the insurance companies just processing claims, right? Get them off our desk and get them out the door, pay the claim and move on. Will the insurance punished. Even if the insured tells the insurance company I want to fight this because I don't think I think it's a baseless claim. They may not listen. So now they can use their own people who are very intimate with their business setting and their business model to help adjudicate these claims, and fight them. So either lower payouts, no payouts, maybe you just have, you know what they call it ala II, which is just, you know, the defense costs. So people like to be able to grab that control, use their guys fight the claims, if they want to, which at the end of the day could help lower your total cost of risk, because you're not just paying out, you know, massive amounts and claims just to get them out the door.

[Bruce Silverman] He's Adam Perea, the Vice President of Elite Risk Insurance, the phone number is  800-979-0176.  His email address is aperea@eliterisk.com. And vclrisk.com is the website. Adam, we had the conversation about small and mid size. Now we're talking about larger businesses, agency businesses in the captives. Let's define small, medium and large.

[Adam Perea] Sure, so from our perspective, we kind of look at the small to mid size or small to medium business as somebody who probably has an aggregate premium, they pay annually of less than $2 million. That includes work comp employee benefits, everything right? So $2 million and below, we would kind of consider a small to mid size business, anything north of that would be a large business.

[Bruce Silverman] And then does that that has to do with the amount of premiums? Does it have to do with the number of clients or the number of employees? Or is it really just what they're paying into premiums?

[Adam Perea] Yeah, so those are all correlated, right? If you have more employees, if you produce more widgets, if you have larger facilities, larger fleets, you're going to have more exposure and higher risk. But it really comes down to what the coverage is, what industry what sector you're in, because just because you're bigger doesn't necessarily mean you have more risk or more exposure. But yeah, so that's that's really the that's where we go through the underwriting process, right? Really just tried to define what that exposure is. But somebody who generates $10 million in gross revenue could have significantly more risk and exposure than somebody who generates fear. $3 million, right? If I'm a $10 million fuel hauler, I have a lot of risk. You know, if I'm a $50 million CPA firm, I still have a lot of risk. It's just significantly different. And some might view it as blue collar versus white collar, and the rating scale changes. So yeah, those are all factors into it is far as you know, what your premiums are, and again, what coverages you feel comfortable buying, right, you might be able to find $2 million of premium for somebody, but they say I only need this these coverages that equal million.

[Bruce Silverman] The reason I wanted to ask that question is there are probably businesses out there that consider themselves small or medium sized businesses, because they're defined by the amount of volume they do, or the amount of employees they have. But as you just articulated a moment ago, you can have someone that does $10 million, that has far more risks than someone that has $50 million. So I guess one of the first things that you do when you sit down with clients or potential clients is to identify if they are a small, medium, or large size business, based upon the insurance industry, and not necessarily what people on the street would consider a small, medium or a large business.

[Adam Perea] You know, through my experience, I've been doing this 10-12 years, we have a good idea of where they're gonna fall, but we don't go in with any preconceived notions. So I wait. It's kind of weird, you know, people say I let the insurance tell me where to go or, you know, whatever business you're in. And that's really what we do. We just start gathering the facts, talk about what their goals and objectives are. And where it plays out is where it plays out, I don't go into somebody and say, Hey, we're going to try to put you into a small captive, or we're going to try to put you into a big captive, let's just talk about what you need, what your goals are, what you're trying to accomplish. At the end of the day, you know, here's what we have, what does that mean? Is that you have to buy all of that, can you buy some of it? You? You know, do you have to go with a large captive? No, it's just let's find out what you have and what you need, and then make a decision from there. One thing that we run into more so on the smaller side, is for years, people have been told you're too small for a captive. What that means is they're too small for that manager. You know, we have programs where we can get insurance that can pay as little as $100,000 and premium every year and still have that captive company. So you know, just because you're a smaller company doesn't mean that you don't have real risk or uninsurable risk by the commercial market standard. So that's why we always tell people don't have that preconceived notion. Let's have an introductory call. Let's walk through it and let your insurance program tell us where to go. Does that mean we write something for everybody? No. Sometimes it doesn't make sense. Sometimes we don't have the option they're looking for. But yeah, so we just we let it we let it go and figure out at the end, what options they have.

[Bruce Silverman] I love how creative you and I've discussed this with Jeff Kleid, the founder of Victoria insurance and Elite Risk. How creative you can get in this industry? Because I think so many people think it's insurance. It's black and white. And there are a million shades of grey everywhere in between. And that's why I'm so glad that we have these conversations. And we have this podcast series so that we can help people really understand what is out there, what's available, and the professionals that they can work with that will really help guide them and find the right solutions for their specific needs. This is managing risk for tomorrow today with Adam Perea. I'm Bruce Silverman if you want to reach out to Adam and his team, 800-979-0176, Adams email is a aperea@eliterisk.com, and the website is vclrisk.com.