Businesses across America have enterprise risk in spades, and the need for business interruption policies to cover these types of events is more important than ever. Enterprise risk refers to the various uncertainties, whether good or bad, that could materially impact the ability for a business to achieve its goals. Now there is an opportunity to turn your risk management into a profit center.
Sure, you can obtain business interruption coverage within a standard business property policy, but those only cover a business or contingent business interruption because of a named peril. Consequently, these enterprise risks are often left untreated by the commercial insurance market—just think of what happened during the COVID-19 pandemic, where supply-chain interruption and bankruptcy of vendors paralyzed businesses. Or, observe the seismic impact ‘the great resignation’ had on retaining key talent and a highly qualified labor force, or even consider cancel culture’s tirade on brand and goodwill reputation.
None of these modern-day triggers are your typical ‘wind, fire, and lightning’ perils captured within a standard business property policy covering business interruption. Meaning, if you want insurance coverage for these risks, you should expect to pay a very high premium to a commercial carrier for a separate coverage line with the understanding that there is NO chance to benefit from the carrier’s underwriting profit. Another way to put it, you can expect your premium to go to the ‘black hole’ of commercial insurance in the event you never have a claim.
There is an alternative to insure against the aforementioned enterprise risks and benefit from the underwriting profit. You are now able to transfer the risk of premiums for coverage to a third-party licensed insurance company. That transfer of risk is a necessary and ordinary business expense under IRS code section 162.
The insurance company cedes all of the insured company’s premiums and risk of coverage to a licensed reinsurance company. The reinsurance company is organized as a protected cell company and has a series of “segregated asset plans” (SAPS) within its reinsurance company. These SAPS are utilized to “link” an insured company’s premiums and risk. The reinsurance company allows the underwriting profits (premiums, less expenses, less claims) in each SAP to be invested for investment income growth. In essence creating a “profit center” for an insured business participating in the reinsurance structure of their own good risk management.
The reinsurance company allows for an investor (business owner, trust, entity, etc…) to purchase an options contract to capitalize the statutory capital requirement of each linked SAP that gives the investor all the ownership rights to withdraw all the underwriting profits and investment income from the linked SAP.
In a nutshell, you can turn the underwriting profit produced from your own responsible risk management into a profitable tax advantaged reward. Additionally, you can rest easy knowing your business is covered from hidden and catastrophic risks, and that the legacy of your business and your family is secure.
If you would like to learn more about how this new tax advantaged profit center works, please contact me at: