NAVIGATING CAPTIVE MANAGEMENT

TRANSCRIPT

[Bruce Silverman] Hey everybody, welcome again for another edition of "Managing Risk for Tomorrow, Today", with Adam Perea, the vice president of Elite Risk Insurance, you can get in touch with Adam at aperea@eliterisk.com and 602-882-1213. Adam, how are you my friend?

[Adam Perea] Bruce, I'm fantastic. You know, we are out here in the desert. And it's middle of August, end of August, and we've had a few days below 100. So you can't ask for much more than that. 

[Bruce Silverman] Global warming.

[Adam Perea] Right? Just when I put up solar on my house, we've had about two weeks of overcast. So that's, that's perfect.

[Bruce Silverman] Best time to get a tan is when it's overcast, right. It's also the best time to play golf. So and we were just talking about golf, before we went on topic of the day choosing a manager, choosing a manager is going to be very, very important, because this is your point person.

[Adam Perea] Yeah, I mean, you know, so often people lose, lose sight of the true intent of what they're trying to do. And, you know, some people shop until somebody gives them the answers they want. And then they're ready to go without really understanding what they're doing or who they're getting involved with. And, you know, a captive manager is, is going to help you through the whole process, you know, make sure you're in, in good shape from regulatory matters to, you know, accounting, policy issuance. So it's really important to understand who your manager is going to be and why you want to choose a manager. That's that's questions I get all the time is clients say, Well, Adam, what questions should I be asking you? Which is actually a good question, because they don't know what they don't know.

[Bruce Silverman] And it shows a lot from a business owner or a manager of a business to ask the questions. What should I be asking you? Because a lot of people, they don't want to embarrass themselves by asking questions that they don't know the answers to. But that's why you hire the professionals.

[Adam Perea] Yeah, and you know, at elite, we're not a captive manager, you know, or specialty MGA, but we have close relationships with with many captive managers. So, yeah, it's, it's definitely I like when when owners or prospects come to us and say, Look, I don't, I don't really know what I don't know. So it's a great place to start.

[Bruce Silverman] So let's start here, price, location, domicile, all of those with a question mark at the end.

[Adam Perea] Yes. So, you know, I've been in this industry for 14-15 years, and you know, it's cyclical, where people are utilizing their captive programs. And, you know, for a certain group of folks out there, they're just looking for the cheapest captive, right? You know, they'll say, Oh, I've heard, you know, they're pretty much all the same, and I get the same benefits. So really, um, price shopping, you know, what's the cheapest one I can find to give me what I want, which, which is okay, except for, you know, the old adage, you get what you pay for. So that's not always the best option. So if somebody's just shopping for price, usually, we'll just say, hey, here's a couple of managers, you might want to go talk to, you know, we're not gonna, we're not gonna be a good fit for you. But here's somebody to help. But if that's what they're looking for happy to help them find, you know, the best price.

The other thing you know, we talked about location, right? Location, location, location. And that could be a number of different things that could be location of where your business is, where your domicile is, a number of things. So you just want to understand, you know, some people choose the location of their manager, what state it's in what state they're in, you know, or you approved in those states. And then domicile for a number of years, it was really sexy to have a foreign domiciled captive, right? You get somebody you could walk into your country club and say, I've got a captive in the Cayman Islands, or Bermuda, whatever it is, and, and they didn't really care much about price. They just wanted to be able to walk in and say that. So you know, it's important. Each of those things has its own reason. And it's important to understand why you're going to select based on one of those criteria.

[Bruce Silverman] But what do they need to understand about the program and the offering? Because, you know, you mentioned a moment ago, that not everybody will ask that question. So it really then follows on the manager to be able to help them understand all of those things.

[Adam Perea] Sure. So you know, there's a whole host of different types of captives that you can have sell captives, standalone captives, as the US protected cells, segregated cells. So if you have a specific need in mind, you want to make sure that that captive manager that you're choosing has that option. available or in that domicile? And, you know, what does that program look like? You know, we start to get some guidance from the IRS about how you can structure the ownership of these things. So if you have something in mind, like your business is owned by a trust, or you want to have the captive owned by a trust, you need to make sure that captive manager has the right program to allow for you to have that ownership, because there's nothing worse than getting into it. And then saying, Well, I didn't know I couldn't do this, because this is really the reason I wanted to do it. So you want to understand how their how their captives are structured. And you know, something, we talked about risk pools or reinsurance, what does that look like and really understand, does that really align with your goals. 

[Bruce Silverman] I guess a lot of it comes down to expertise, you know, you mentioned trusts trust need to be set up in a very specific way, if they're not set up in the correct way, they can be the complete opposite of what they're intended to do. And that's just working with an attorney. Now, if you start bringing in outside people, to set up captives within trust, you can really go sideways, if you don't have everybody working together towards the common goal that has the knowledge and the expertise to structure it the way it needs to be done.

[Adam Perea] Yeah, you know, understanding what the guidelines are, and what you need to make that structure work is important, right. So when we talk about expertise, we definitely want to make sure we have those third parties involved that are experts. So they're setting up their trust, or it's part of their succession planning, whatever, make sure that that really is in line with the goals of the captive. And then you want to understand the captive managers expertise, right? If they're experts in reinsurance or sell captives or they have a niche for the auto industry, you really want to understand where are they coming from? And where can they really thrive and helping you with your risk management program.

[Bruce Silverman] He is Adam Perea he is the vice president of Elite risk insurance, you can reach him at aperea@eliterisk.com, 602-882-1213. This is managing risk for tomorrow today. And Adam, let's go to the limitations. Because it's not wide open. There are limitations in in this discussion as well.

[Adam Perea] Yeah, you know, the limitations are an important part to know, when you're when you're looking at a manager, right? And that could mean a number of different things, the limitations of their expertise, their offerings, you know, can they help you if you want to set up and structure a warranty program, if you want to if you have a need for rated paper if you need reinsurance. So you know, understanding what the captive manager really can't help you with is more important sometimes and understanding what they can help you with. So if you think you need reinsurance, and the captive manager says, you know, we just don't really get involved in that, or we don't have partners, that's not our strong suit, or, Hey, we're going to set up a warranty program. And we need to understand how this works, right? Do we sell it as insurance is at reinsurance. So really understanding those limiting factors as a captive manager? Are they a manager that's going to help you achieve just a standard? Here's my enterprise risk? Let's get it set up. Let's manage it for you. Or can they help you with, you know, the bigger picture, right, my whole risk management program? And can we really start solving for problems? Or are you just looking for, you know, a traditional captive?

So yeah, I mean, just understanding those those limitations is going to be huge. Because, you know, as we'll talk about in future episodes, it's really cumbersome to get into some of these arrangements. And it's not as easy to get out of them. So if you're, if you jump in too soon, and you and you run into some limitations that aren't going to be beneficial for you. It's not as easy as just saying, Thanks, walk away and get into another one. So I think asking all those questions of everything we've talked about today, really understanding who you're who you're getting into bed with, so to speak, and make sure that they align across the board, right? Can they help you with what they're doing? Or with what you're doing? And are they the right fit? Because oftentimes, there's a lot of good sales guys, and they can sell you a bill of goods. And then once you've signed on the dotted line, you're kind of stuck. So it's really important to understand what you need out of your program and making sure that that manager has has has the tools available to make that work.

[Bruce Silverman] Always got to make sure that they can deliver on what they sell. And you talk about the questions that need to be asked and the education that needs to happen for a bit. snares to really understand how they can take full advantage of insurance. And that's one of the great things about this entire podcast series that elite risk and Victoria insurance have put together to help businesses really understand what they can and cannot do and the questions that they should be asking as well. He's Adam Perea he's the vice president of Elite risk insurance, you can reach him at aperea@eliterisk.com, 602-882-1213. Adam always learned so much from our discussions, and I know we're going to continue to have.

[Adam Perea] Thanks Bruce. I look forward to the next one.

[Bruce Silverman] Me too.