Commercial Insurance: Moving Past State Farm- Harold Howell
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Morning, thanks for joining us. Uh, this is the 3rd, uh, episode edition of what we like to call a charting opportunities, uh, monthly basis. We are bringing a new. Topic that is front center and what most business owners are looking to get a little bit more information about each topic. We are bringing a, an expert subject matter expert.
Today, we have Harold now with us, and it’s going to be talked about business insurance. Um, so we are going to pepper him with a few questions and, uh, he’s got a few case studies that he’s going to share with us today. So, thanks for joining us. Thank you. Want an introduction on my company and what I do?
Um, so I run a company, uh, [00:01:00] that is called Spartan Corporate Advisors. And, um, it’s kind of a generic name so that we can, um, help clients in any way we possibly can. But my background is insurance, so I was first licensed in 1993. That puts it at almost 31 years. It was, uh, fall of 93, so they’re not quite there yet, just over 30 years.
Um, as a broker, so essentially as a broker you are bidding insurance programs out, but During that course, you learn, all right, what’s good, what’s bad, what’s needed here, what’s not needed there and that sort of thing. So most of our focus is auditing and reviewing people’s, um. Companies insurance programs, and how they’re attacking their risks.
And what risks they’re concerned about kind of straighten that out. We find the holes we find, um. Ways to save money ways to spend some money at times [00:02:00] as well. They think they’re insured for certain things and they may or may not be. So shine the light on all that sort of thing. So, um, there’s lots of types of insurance, right?
Um. Like insurance disability, long term care access liability, uh, this is targeted for for business owners, predominantly the business operation, whatever the business operation is entailed as far as the expansion. It goes. So, um, when you’re a startup, it’s going to be the 1st thing that somebody else requires you to buy because nobody wants to buy insurance and get that.
I don’t want to buy insurance either, but when you lease space, that’s usually the 1st 1 and they want a general liability policy so that the landlord’s not liable for your operations. Um, they want you to have insurance policy. So that’s that’s the 1st thing that people tend to buy. And then somebody 11 now, well, you got computers, you got furniture, you got some artwork in your, in your office.
You might want to ensure that stuff since this place is not [00:03:00] secure that sort of thing. So now you got a property policy. Okay, now you wanted to hire a few people. Well, you hired that third person. That third person requires you to have workers compensation. In North Carolina, every state could be a little bit different, but typically it’s about two to three employees.
You have to have workers compensation if they’re WCAG employees. So now you’ve got a third policy, and it continues to grow as your operations continue to grow. As far as the risks that you’re going to, um, entail, and then contracts, like customer contracts will also dictate you buy certain amounts of insurance.
And so people tend to start small and just keep building up that program. Can we, um, so we sent out the newsletter kind of talking a little bit about 3 different businesses that are out there. I. so, yeah, um, 1 of these businesses kind of fits that classic trail of what you’re just talking about, which is 30 year old business in the landscape.
Industry, and it, [00:04:00] um, and we brought you on board late last year, earlier this year to review their policies because they just seemed out of whack, right? They were up the legacy carrier. Great carrier for folks are getting started. All right. I think we’ll stay farmer or 1 of the bureaus. Um, but they. Just continued stacking policy on top of policy on top of policy, which is what a lot of business owners did.
And you walked in the door, you can just talk a little bit about what you saw, how it was built, and then how you kind of stripped it down and rebuild their insurance risk management program. Yeah, and then. Finish that with this question with the, this is the 3rd phase. This is 1 of the phase gives people excited.
Talk about the cost savings that goes into it sometimes. Right? And I know it’s kind of always going to be as impactful as this 1 was, but it was rather impactful cost savings. This was pretty typical. It’s a family run business. Well, it still is a family run business, but they [00:05:00] started small and they bought it from the guy that had a little office in a strip mall, right?
They bought their insurance that way. Um, but they, they really did a great job growing their business and they ended up having well, by the time I got there. 150 employees. Well, that little strip mall insurance company that they bought from is not designed to provide coverage for 150 employee organization, right?
There’s certain carriers that are really good at small business. And turnkey and get you there, get you done, get you cheap. Um, but when you grow that much, um, you need to look at other opportunities, other other avenues because what was looking good. 10 years ago, it’s not it’s not the same profile anymore.
So, a lot more different operations, a lot more claims activity, a lot more resources available to the clients if they go with the right. Really, it’s the right fit and 100 person [00:06:00] company is not necessarily best served by any of those what we call direct writers. So, um. That’s going to be like a farm bureau and I’ll stay things like that.
Great for a small startup business. Um, they get to get to what you need that first general liability and property policy. They can do that, but they’re not so great at doing a larger company. So, in that not so great when we, we consolidate everything with, um, the markets that we work with, the insurance companies that we work with for larger companies.
Yeah, they offer a lot, a lot more for a lot less premium. They know what the business is. They know where they can help. They know where they can, um, control the losses, which drives the premium, right? Um, see how that balances out, but, um. It’s not going to be those those strip mall insurance companies. It’s going to be a different set of companies that are geared to help.
Uh, it’s still a small company, [00:07:00] but the carrier set reuse, they do small to medium sized companies. So. Save money on the premium. More importantly, you found more resources, um, from the insurance companies, uh, resources, meaning, um, to control the cost, control the claims, educate all the employees, educate all the leaders within the firm on how to manage the risk and, uh, That will keep their insurance costs down.
So if I’m starting my business today, right? And my doesn’t make sense to go to the same form and get it started, or are they less expensive on the front end when we have less. You know, employees and then come to you once we had 100 employees or at what point are we looking to switch? Should we come to you?
They want or come to them? Yeah, well, we. We offer day 1 and the carriers that we use have segments in their, in their underwriting. So they have a small business segment and the middle market segment, and then we’ll have the large [00:08:00] stuff outside of that. So we do a few large ones. Most of our stuff is in that little segment.
Um, the turnkey stuff is available, but as far as cost comparisons. The state farms are great. I hate to pick on any insurance company, but because we use state farms here, we’ll send people there, but that’s usually on the personal lines side. So that’s going to be your home, your auto, uh, individual type stuff.
They can do a small bop. I’m sure a business policy, but if I know they’re going to actually grow over the next 3 to 5 years. It’s probably not that wouldn’t be my advice. I would not put them on the same farm if I know they’re going to grow because they might as well. Get connected and start a relationship with a carrier that will grow with them and can offer the services as they grow and help them actually grow a little bit better.
Growth meaning just employees or is it revenue? Is it assets? What is growth? So, so assets would be a property [00:09:00] issue. Employees is a worker’s comp issue. Uh, the revenue is probably the biggest issue. Um, more customers or bigger contracts, they’re going to require different types of coverages. So let’s More so on the revenue side than it is on the employee side versus or the, uh, the property side.
Um, if it’s a real estate company, then the property is a different issue, right? If they’re buying and developing that sort of thing, then the property becomes a big issue. Typically, the property is not a big issue for a small company. Or the landscaping company. Right. Can you kind of get into some of the details of what they had and what you did and yeah, the result?
Okay. Sure. Um, I think they were growing for a good 25 years and they were with one of those types of carriers for 25 years. Um, the problems there were number 1, the auto. Uh, number 2, the workers comp, there are no services provided by these, um. Not only carries for response and their workers [00:10:00] comp. We call it an expert qualification factor.
It’s basically, how are they doing? What is their credit rating? For workers comp insurance, they weren’t doing too well. And they weren’t getting any services, so they didn’t even know what to do about it. But, uh. By us getting involved, we immediately get rid of, um, a lot of the, uh, the charges that they were running into for having me want to save the other details.
Um, their expat was way too hot. It was, it was, it was blown out of proportion and they needed to take control of their losses. Um, got to have a carrier that will come in there and do that sort of thing for them to have a team that will do that for them. Why would carriers do that? They want to retain business for long term.
And in order to do that, they need to show value. The value there is reducing their overall cost and making their employees safer, making the whole operation safer and [00:11:00] clean. So, in that case, I mean, again, that was that 100 person company, 150. Our projections are showing over 100, 000 dollars worth of savings.
1st year, if they hit our projections. If they blow things out, you know, big problems happen, then we’re going to be close to what they were paying last year. But we have such a huge window of opportunity, huge margin of opportunity that, um, it was worth taking, taking, uh, another direction, changing them to a week area.
I think it’s working out pretty well. We’re about nine months into it at this point. Much different than what they used to do. So the big factor on that one was the auto and the workers comp. It could be different for different companies. But that 1, the auto, they had 80 vehicles on their policy, and it was with 1 of those strip all type of insurance companies.
So I call them not the best fit, not the best fit because of the resources and the readings. It’s [00:12:00] fine for a brand new company. It’s not so fine when you have 80, they don’t care about having 80 vehicles. Um, the other carriers, you got 80 vehicles, that’s a spread out of risk. You’re going to get discounts because of that spread for us.
Um, but with the, you know, a standardized carrier, everything’s in the computer system and there’s no flexibility in that. So. You’ve got to go with a more commercially designed insurance company for many collectors. So, at what point should a company.
It’s not even what point, right? I mean, you just explained, I mean, it’s almost a 0. 0, but they should be doing something different. Yeah, what, um, what should they expect when they, is it like, I always think of business disruption, right? Like, oh, gosh, we’ve got to pick up and we’ve got to, we’ve got to move our entire insurance over someplace else.
On top of trying to grow the business on top of trying to retain employees on top of. [00:13:00] And on and on and off, right? Like, so when you replace an insurance program like that, how disruptive is it to the underlying business? Yeah, the property cash to size, so that’s that’s your general liability, your property, your commercial auto, all the commercial policies.
That’s really a contractual swap and most employees would never know that you did anything. Employee benefits is a little bit different. If you’re changing health plans. That’s a bigger endeavor, especially for 115 employees, right? That’s a different answer. Yeah, that’s very, um, involved. Um, but the PNC stuff, the only disruption that we had is that we, on that case, the first big case, we instituted a lot more safety.
Involvement right there, safety training, education of all the employees. So the reps from the insurance carriers are going to go out to the safety meetings and provide for safety, um, manuals and things like that. So, so I want to say it’s disruptive, but it is additional stuff that you wouldn’t [00:14:00] normally that they never seen before with that with that particular company.
They never say anything like it because the carrier they had never offered that sort of thing. So there’s a little disruption and that if you want to call it disruption, I would say, no, it’s just value added. Resources, yeah, so it’s just recycles 100 to 150, 000 dollars a year premium savings. Um, if that business were to sell at any point in time, you’re talking about is just about saving 100 to 150, 000 dollars a year.
You’re talking about value on top of it of a, you know, whatever that multiple is for that company 3 to 8, I mean, you’re talking 300 to a 1M dollars in additional value on a sale by cleaning up your insurance program. Before you walk into the transaction. Absolutely. So that’s that’s where their big value was as well.
Yeah. So, um, move on a case study or 2. Want to talk a little bit about a potential 2nd case. Yeah, so, um, another scenario where we, we, [00:15:00] we brought Harold in, um, I’ve got a client that is in the, uh, tech software business, right? And, and had a opportunity with a potential client that, uh, was government based.
Right? They had an RFP, uh, with a requirement for, um, some insurance and Harold came to the table. So tell us kind of about that situation. So that was pretty typical, um, development of the company and much younger company. They started out with that first general liability policy and then bought the property and bought.
And so they stack these things, but during the course of the year, they all have different expiration dates, contract dates. And so if you consolidated that all together along with the workers comp, that was a separate carrier. Be much cleaner, much easier to renew on an annual basis. And then, um, the policy of wording needed to be, uh, amended as well.
They had a, uh, significant policy that, um, wasn’t doing what they thought they would, that it [00:16:00] should be doing. And, um, it could be, um, I don’t think it’s a huge tax issue, but just the way they have set up was going to be a tax issue. They were audited so that on that side, there were younger companies, so they just needed a lot more cleanup.
Because they were adding 1 policy at a time every few months, and it just consolidated that all and have 1 date. 1, 1 proposal, and we’ll have 1 carrier handle all of that and it’s a tech company. So there are specific. Insurance companies that really focus on the technology sectors, and they’re just much better at it than the other carriers that particular cares that they have.
So, that’s a, that’s more of a cleanup and when you clean things up, it’s also going to get more efficient and cheaper. How many how many policies, uh, companies were they working with and when you clean it up kind of what does it look like at the end of that [00:17:00] process? They had 2 different carriers and so they can go under 1 carrier for the bulk of their business.
Uh, insurance. They also have a life insurance, a key personal life insurance. That’s always going to be a different carrier. Um, and that was the piece that was just not done. Right. So, so it’s funny, I was talking to an insurance agent this morning on the different side of the business, right? Is the long term care insurance agent and we were talking earlier about the client and the risk profile of the client.
Is that okay? Well, let’s go look at this carrier as a result. Um, and what you just said kind of puts in the same limelight, right? The tech company, there are carriers that are more of customers. I say, and I understand this risk. And therefore I can price it better and then there are other companies that maybe are more aligned with landscape or construction or something else.
It’s always the case just taking it and. You understanding the nature of the business and the, um, the nature of the different [00:18:00] carriers have an opportunity to kind of clean it up, place it with the right carrier and get a more efficient pricing going forward. That’s exactly it. Um, every sector is different.
So construction, you have your set of carriers that can be built good and cheaper and resourceful for. Construction related businesses, and then the technology, you know, there’s really been just a few that I’ve used and I’ve done. Most of my previous technology stuff out of California and Southern California with NASDAQ and such, but, um, there were 3 carriers that are really exceptional at that.
They’re horrible at construction. So, I mean, they wouldn’t, they couldn’t even underwrite the construction related businesses that we have, but they’re really good on the technology side and in that. The price better, and they’re going to provide more services and also better coverage because they know what the risks are for technology company.
Right? These guys are coding, they’re providing tech services. They’re inside of other people’s networks. [00:19:00] Um, the communications and things like that. Well, yeah. Construction guys don’t know anything about that shortly, and it wouldn’t cover that short. But the technology focus insurance companies do. So you’ve got to be again, right fit.
I mentioned that earlier. It’s going to be the right fit. So my natural pullback on that would be, you know, uh, you’re a well dressed, um, man. From hair will cap is, um, am I paying more as a result of, you know, starting out with you from the gift me or zero, zero, it’s got nothing to do with, but you don’t have to use me.
Just I just want everybody to be using an experience broker. But the end result is, you’re not, I mean, from a premium perspective, most of the time when you walk in the door, you’re saving money with you in the first place, right? The information is, is, oh, I don’t want to pay a broker, but that’s not the case.
Most of the time. No, it’s all built in. You’re all, you’re going [00:20:00] to sell the car. It’s all, it’s all built in, and it ranges between 10 and 15 percent on the commission side. Yeah. That holds true with a state farm agent. Yeah. You know, if you’ve got a good freshman that runs a state farm shop, he gets 10 percent of anything he writes.
So it doesn’t matter where they bought it. No, it’s marketing sales. So no additional cost. Unless you sign up on a consulting agreement. Then, um, which I’d love to do, but I’ve only done a few of them. Um, you take all the commissions out and do it in a separate fee for service type of consulting agreement, which we’re all able to do, but, um, for the most part, small, medium sized companies, just, we know what you get paid.
I mean, they’re saying, we know what you could pay. Just take your commissions and you’ve earned it. That’s sort of like, so since we’re talking about fees, if I’m a business owner and I’ve got state farm or whatever policies that I have, and I’m not quite sure if I’ve hit the growth. Tears that [00:21:00] I need to bring you in for whatever reason.
And, um, what are you charged to, like, review the policies and kind of tell me what do I have? And like, what are maybe not just you, but the industry brokers? What’s that look like? For our firm, we don’t actually charge for that initial review. If there’s going to be a lot of activity going forward, then we’re not going to do much work until we’ve got more of a.
Secured arrangement with the client, right? The initial review though. I can tell, hey, there’s there’s issues here and here and here. It’s probably representing 25, 000 dollars worth of, um, uh, premium that you’re overpaying. Is it worth us taking a look at this? So, the way they answer that question is important.
If they say, yeah, I want you to take a look at it. Define them, we’re going to do this, this, and this, we’re going to sign an agreement on this. If we provide a proposal. [00:22:00] That, um, you know, it’s all all of our criteria, you know, you’re committed to go with our proposal. Right? And again, there’s nothing contractual, but people’s word is everything to me.
It’s typically when working with the. Owner of the CEO of the company anyway, so. I haven’t been burned on that approach, so there are no additional fees to answer that. Initial question, so does it hurt to have somebody to take a look at the programs? No, never hurts. Um, as far as kind of alluded to the question that where and when do you have somebody review this?
It’s a tough, it’s a tough answer. Most of my clients, you know, they’re doing five, at least 5 million in revenue. Okay. So if they’re doing that, then there’s probably some activity in there to take a look at. On average, I think our, you know, my main clients that I speak to [00:23:00] 50 percent of the time, they’re going over 20 million in revenues.
So The little ones, yeah, we’ll help them, but the ones that need a lot of assistance, it’s going to be more than a 20 million type of client. If they’re spending 50, 000 dollars in premium, probably would be worth taking a look at. I’d be able to save them 10, 15 percent. Yeah, so is it worth it? You kind of lead me to the punch there.
So employees, revenue, this watermark, any other. Uh, red flags that as a business owner, uh, would make me say, I need to call, uh, Harold or a broker. And every company is a little bit different. Right? So, it depends what they’re doing and very much very much. Depends on what they’re doing, like, brand new company workers, comp construction.
Let’s take that, for instance, um, carriers won’t write them, so they [00:24:00] have to go through the state program state program is 25 percent more than. Everyone else, the market rates, they don’t want to see that program more than they have to, right? Because they’re paying 25. they know they’re paying 25 percent more and if it’s a decent company with low claims activity, they’re paying a lot more than they need to be paying.
So, another, we haven’t mentioned this 1, but the exact scenario that this other, it was a staffing company. And nobody would take them when they first started. Give them a year experience. Then we got AIG to take them, give them another year experience, and now we’ve got 3 or 4 carriers to look at it. And 1 more year of experience, they’ve got 3 years total.
Now they have a real experienced mod, you need a 3 year trail. Um, now we’ve got some really great carriers with great opportunities and saved probably over 50 percent from their initial rates to the, um, you know, 3 year old rates. 3 year maturity. So, as companies evolve, they need to take a look at that sort of thing.[00:25:00]
Case study number 3. You ready? Yeah. So. Anyways, we are, um, mentioned it again in the newsletter that went out as a nursing home. She came in. And we’re all a different solution to the table, right? It’s not a solution that’s available to everybody. It’s not a solution. Everybody wants to participate in. Yeah, we did.
We did 2 things. The 1st thing was, uh, the workers comp was totally out of whack. It was, like, over 6. zero x mod. So everyone in this business knows way out of whack. Uh, can you just real quick, can you just explain what x mod is? Because I think that’s the third time you mentioned that. The x mod is experience modification factor and we call it an x mod.
It is a rating of your loss history for the insurance, you know, for the insurance clients. So 1. 0 is average for your industry sec for your SIC code. So [00:26:00] 1. 2 is your 20 percent higher. You’re painting and you’re paying 20 percent over. Did you say six? This guy was six. He’s paying six times over what the industry average was.
So obviously this disaster had to get revamped entirely and nobody’s going to write that at six. So we take a premium, but that’s not helping us. Right? So we had to get in there and re revamp everything, get lost patrol every there. Everything in there, and also we did a, a shared shared risk type of program that evolved into a captive program.
So not only is it. Workers confident your mom’s are bad that the medical malpractice is really bad. This is really tough. So, on the medical malpractice, the premiums are going up. Over a 1, 000, 000 dollars a year, so they developed a captive insurance program. So, we bought some insurance from the carriers, but then they buy all the excess from the [00:27:00] captive and that captive is theirs.
They own it, so, yeah, they’re buying more insurance, but they’re buying it from a company that they actually own and have positive. Asset outside company. So we, we do that sort of thing. That’s very, very, you know, short synopsis and very advanced. Yeah. So, before we go down the path of captive on and back up to the workers cop, um, my youngest brother, right?
He’s, he’s managing a business back home and consistently complaining about the cost of workers comp. Um, if if I have a paper cut, I’m going to let William know that there’s probably a workers cost claim. Tell me right? Uh, how how does a business owner. Mitigate, uh, you know, employees may be taking advantage of of that, which leads to increased premiums and costs.
And what what do you do about that? Well, there’s a few things you can’t do. [00:28:00] I know it, uh, strategic contest, they, they have an incentive program. And what they do is they have their employees compete per units per class or. Somehow divide divide the, uh, the employment base out and the winning unit. Gets rewarded with financial bonuses in order to win.
You got to have, you know, the lowest workers complex and more importantly, it’s the time off of work claims. Um, paper cut. Yeah. Okay. Go down to the urgent care, get us strapped up and come back to work. Right? You can still come back to work. I’m somebody to leave for a couple of weeks. Now you’re really paying.
A bigger cost for the employer. Okay. Now, he’s missing a boy for 2 weeks. It’s going to pay him 70 percent of the carrier’s going to pay him 70 percent of his, uh, his salary. And that’s going to hurt your expon, right? But he also has to get somebody else to fill in for that work for 2 weeks. [00:29:00] And can he get somebody else that is the same caliber and the same rate?
That’s the guy that’s after 2 weeks. Probably not. He’s going to have to pay up for a staffing company bringing somebody else in. So it’s very expensive to have somebody else, um, to leave work. You don’t want them to. That that injured, so what can they do? It’s it’s education and it’s the incentive programs.
Um, and it’s leadership, making sure that they’re really watching over everything. They got to have a safety manual, they got to have safety meetings, things of that nature. To have all this structure in place, the carriers will give them more credibility and more credits on their on the premium. If they’re consistently just stacking up the claims.
Um, and not do anything about it. Carriers hate that. And they’re going to stick them, they’re going to stick the price tag on it. And if he’s continuing to pay more and more each year, he should probably have his broker take a look, good broker take a look at it and give him some other options. How do you [00:30:00] so 100 plus employees, especially down to have a bad apple in there and someone that’s filing a claim just to get paid and maybe they just want to sit at home and can receive a paycheck and they’re not actually hurt anyway to figure that out.
Yeah, there’s investigations on that investigation. And I’ll tell you the ones that, um, some carriers pay for it and do it immediately. And some carriers, you got to demand that they do it for you. Some carriers will say, no, we’re not going to mess around with that. So that the guys that are buying safe, safe, far from the best around with that.
Right, but the larger carriage that have a lot of shared stake. In the whole situation, they’re going to stick somebody out. They’re going to, we’re going to videotape that guy. And we’re going to, we’re going to get good. So, and they’ll deny the points. You know, when they have videotaped the guys working somewhere else, which is.
More often than not, because then you get double pay, you know, sitting around the house and you don’t really necessarily see that too much, but it’s gotta be legitimate. And there’s, there’s a lot of different things that you could do on [00:31:00] reviewing the medical claims and review in the procedures, reviewing what his prognosis is.
And then, um, training them to get back to work, um, training them to do things that he wasn’t doing before to at least get back to work. At least be on the force sweeping force or something, depending what kind of businesses is right. If you can find a place. And something for them to do in the office.
Even though they’re still injured that helps, even if it’s part time. So, you carriage offer that to you said earlier, we had to go in there and help them clean up their, the workers comp program. How active are you in that? Um, on the initial side, very active, we coordinate with the. 1st of all, we do an RFP for a new insurance company to come in and there’ll be a few of them to choose from.
And then once we choose 1, then we do the initials. We do the initial setup, we go out there and meet with all the supervisors [00:32:00] and things of that nature. But then they, they, they take the ball at that point with the incentive programs and the safety meetings. I don’t, I don’t do safety meetings. But the carrier should have somebody if they don’t, we bring, if that is the issue and we end up with a carrier that doesn’t have a safety counselor, then we bring them in outside.
There are independent safety guys out there too. Perfect, so you’re helping them get their stuff, bringing the right people in and help them get things in place and then letting the carriers take it from there. Right? And then we’ll get reports every 3 to 6 months. On the progress of everything. Mostly watch the class things activity.
And because that pretty much dictates how successful. Um, captives don’t want to get too much into it because he’s his own beast. Right? Yeah, but you mentioned it. You hear about it bouncing off the walls from time to time, but what size kind of does [00:33:00] it kind of make sense to really think about exploring that?
Yeah, well, there’s expenses to it. So, um. The criteria is going to be based around the finances. Exposures are important to you with the cactus. It’s basically setting up your own insurance company and it operates like a real insurance company. It is a real insurance company. We get a license just like any other company.
However, the reserves are different because you’re providing for yourself. You’re not providing for the outside consumer. Marketplace, so reserves, you don’t have to build out the multimillion dollar reserves, um, in order to operate. So, with the expenses, we, we believe it’s right around 250, 000 dollars, um, to set up a captive.
That’s a premium that’s like, on the low end. And that’s 250, 000 dollars is going towards your own captive. Out [00:34:00] of that will be about 10 percent expenses. So, you’re going to spend 25 grand on that. It’s got 30 grand on that. To arrange, um, it’s got to make sense. Right? So now you’ve got 220, 000 dollars that you’ve taken out of operations, put into your captive.
So the captive needs to grow. And if it can grow through investments, then that covers that 25 grand. If it can’t grow through investments, then you kind of shoot yourself in the foot a little bit, but there’s some tax advantages, like money from 1 entity and starting another entity. Um, we don’t pitch that though.
Iris does not like us pitching that. But you can see that that’s where people are really focused on tax advantage. So, on the very low end, it’s about 250, 000 dollars of premium. So, what are we buying with that premium would be the question. So, physicians are big on this. Providing medical malpractice. By 1 day, I think there’s, there’s a huge [00:35:00] unknown exposure for for any kind of position, any kind of health care.
There’s an unknown default suit, so that proof it back it up. Now, there’s COVID, so now we, or pandemic is what we’re going to refer to it as coverage. So, you know, providing insurance for your and down, so I come up. What can I have during a pandemic? Well, you can lose your people. You get sick. Your customers get sick.
People are going to be point figures everywhere. You need that. Sure. Personal protection equipment, you need to change your whole organization to some degree. So there’s an extra coverage there. And then the most popular area of coverage that we can provide through captive that you can’t in the open marketplace.
Is what we call dispute resolution sounds like, um, general liability type of thing, but basically it’s there to resolve any disputes, any kind of allegations against you, if you get sued or any kind of demands against you, you can’t draw from this policy or just that sort of thing. [00:36:00] So, those are most got cyber.
It should be by cyber and what is what is the appropriate amount of cyber insurance? It’s it’s unknown. So. If it’s unknown, you can buy 3 cactus. If the exposure is unknown. And the list goes on, we typically provide, um, there’s 18 couple lines of coverages that that we provide through our captives.
Minimum 250 K, where it makes sense to kind of enter the captive area. What. What does the business look like in terms of. Right now, the bottom line is probably just over a million dollars. Is their bottom line so now you have a tax advantage and you also have that exposure. So. How do you get a bottom line of a million dollars?
Well, you could be a 1. 2 million company. You could be a 10 million company. We know that’s right. If your margin is only 10%, you still have to run the numbers. Um, as long as the [00:37:00] investments are doing well, then, then it makes sense. It’s a lot of sense. Most of our clients, um, are right at the, about the million dollar mark.
They’re, they’re putting them out, buying a million dollars worth of additional insurance, but they’re buying it from their own capitive. So, yeah, they have additional coverage, but at the same time, they have an asset. That’s right.
Caitlin any questions from the audience or audience? Any questions at this point? I’m not. I got additional non case study questions. I can pepper here with. Yeah, we do have 1, I advise you 49ers fan, but that’s the difference. I don’t think they’ll be able to hear me. So you may have to repeat it, but we have a new contracting business.
Um, I don’t think they’ll hear me in the microphone. It’s the new contracting business. Yeah, they’re paying auto professional, you know, and health auto professional health and, you know, you know, they need bonding. They’re paying a fortune would love an [00:38:00] alternative or. To validate sorry, they would love an alternative or to validate the money that he’s spending.
Um, if it’s appropriate. Yeah, it’s just not sure. Right, so bonding was the new 1 that we haven’t talked about yet. So bonding is going to be a function of their financial status. Right. So if he’s doing contracts and they require a bond, well, it’s really checking to make sure that he can finish the job.
And how do they underwrite that? They look at the finances, they look at the track record. So that’s same thing as the work, or not the worker’s comp, the other one where it takes like three years or if the experience to get to or, uh, no, because the brand new companies will need bonds too. So it’s, it’s really, yeah.
It’s gonna be your d and b. And how long does it take you to get a d and b credit rating? It’s more the credit, actual credit ratings for the company. So, the Dun Bradstreet credit rating is the more important piece of that puzzle. As far as the other lines of coverage is, um, [00:39:00] if it’s contracting, if it’s construction.
Um, you could probably consolidate those other lines. And, um, make sure that that gets efficient. Um, whether it’s good or not, I don’t know, you know, that’s that’s relative. Until we see what they’re doing and see what they’ve got. All right, so I couldn’t tell you right off the cuff that it’s it’s got health insurance.
Um, they mentioned health, right? Yeah, depending where they’re at, what state they’re at. There’s not a lot of options for a small group, but there are options on the plan design and the contribution employer contribution levels. So, so that’s a deeper conversation too. I can’t really answer this question to be honest with you just just off the cuff.
Yeah, look at the details. Right? I mean, you did. You can walk in the door of a building and kind of already start to understand where the risk and opportunities are, but then an insurance program. And then you just need to [00:40:00] see the policies that they currently have to see if they match. Right? It probably takes you an hour to look at the policies and say, this company stinks.
This company’s good. This is good. And now I’ll be honest with you. It doesn’t it’s not even an hour, but nobody knows that nobody needs to know that. I think I just heard you say 10 hours. Right? Marilyn. Is that what it was? Yes. So they’re paying 3 percent for bonding. And he’s also wondering about PEO. A three, a three percent bond is excellent.
Okay. Um, the PEOs are good as long as you know what the rates you’re paying on those. I like those for smaller companies because once you’re out, you’re out. I mean, there’s more flexibility there. So the PEO for the, um, the payroll and the health. Yeah, he just needs to know how much he’s paying per employee.
If it’s, you know, over 25 bucks per employee, that’s, this is per employee per, For month, if they don’t break that out for you, then there’s a reason they’re not breaking that out for you. So, it’s convenient. It’s easy. [00:41:00] There’s probably a better deal out there, though. To be honest, depending on how many employees he’s got, which is a fair point.
We’ll put arrows contact information in our follow up. Just in case. Am I able to quote or just want to not even a quote, just an opportunity to kind of call. And she agrees with you about insurance or by your 40, not a shame. So, in general, I’d like to, but there’s a lot of them out there that are just charging way too much.
They’re just making too much money. Okay. Is that the only question so far from the audience? So, you don’t know about the 9ers? No. It’s Joe Montana, man. He went to Notre Dame and came over to the 9ers. The 9ers were a losing team. Yeah, I’m going for that. And what did they do? Turn it around. I’m not even bored yet, but they turn it around.
Um, but kind of like that, Joe Montana and the 49ers, worst case scenario or worst [00:42:00] situation that you’ve walked in the room on. Um, and what was it from an insurance risk management perspective? Uh, that 6. 0 X spot is probably the highest. So they were using the worker’s 12th program as their health program.
That’s really what was going on. And then so nursing, nursing up, right? So they know the ins and outs of the law. They know the ins and outs of getting health care and how they can just charge it all to their worker’s 12th. Well, it’s illegal, number one. But number two, it’s no way, it’s no way to run a business.
I mean, that was, that was hundreds of thousands of dollars overspent. And, and, uh, a good reason why, um, that company was acquired. Because they were not profitable. Well, it became profitable. Shortly thereafter, it takes you the 3 year trail for workers. It’ll take you 2 to 3 years to fix it. But. Once it’s fixed, it becomes a very profitable organization.
Let me brings up a [00:43:00] few questions that business owners are always in. Uh, I shouldn’t say always there’s always the potential to be acquired. Um, and then there’s also the potential for them to acquire. The company is part of their growth strategy plan, et cetera. So how’s the insurance play into the world of acquisitions?
Of either the, you know, our clients or folks on the call being acquired or potentially. Um, the insurance program with the applicant, they’re acquiring some money for growth. Should that be 1 of the 1st things they look at? Yeah, it’s a telltale definitely telltale sign of how that company is being run.
Right and it’s also a telltale sign on how successful you’re going to be going forward. So you take a look if there’s a lot of claims activity. It’s not well run. And every, every insurance financial institution will say the same thing. If there’s massive and there’s nothing being done about it, that means they don’t really know to take action.
That’s that. That too. So, and there could be different reasons for that, but any m and a [00:44:00] activity should evaluate the insurance program, and more importantly, the loss history of that insurance program, which most business owners don’t look at. We look at it every time we try to get a new RFPA new proposal.
And the insurance companies all look at it because that’s what tells us what’s going on out there. That’s the credibility is the loss history. Most carriers actually don’t even send it out unless you request it, but you can always get it. Upon written request that would tell me if I’m looking to sell my business 2 to 3 years before I’m looking to sell my business.
I’m really making sure that my claims process is getting cleaned up cleaned up is documented and it’s. Um, if nothing else, it makes it look like the business as well. Ron, right? Exactly. Exactly. Um, that ties in directly for sure. So, anything else on line? Nope. Any other tidbits of information from a risk management perspective for the audience, it’s okay [00:45:00] to say, no, you’re ready for lunch.
Well, no, you’re really ready for lunch. But for me, from my standpoint, I just wish business owners would communicate a heck a lot more than they do. When you’re buying new stuff, when you’re moving, when you’re sending stuff, we had a fire in Taiwan. They never told us they sent chipsets to Taiwan. If you want your things protected, you’ve got to communicate with those that are trying to protect you.
You can’t do it, you know, in the dark. So it’s a communication thing. Communication is huge. Trust your broker. If you don’t trust your broker, then you don’t have the right broker.
Communication on the football field. As well, as in life and business is extraordinarily important. So, well, Harold, thanks so much for joining us. Um, you know, you certainly. I’ve known you for 1 of the longest running folks I’ve known here in Charlotte, and it’s just soon after moving here and you provide a great insurance comments for 14 years now.
So I [00:46:00] appreciate you coming in. That makes me a geek. Test me a major insurance geek. Yeah, well, I mean, you’re a good company, but keeps here on this on this stage. So. We’ll shift in next month, hopefully I’ll send the invite for next month. We’re going to do a presentation on managing stress and wellness as we enter the new year.
We’ve got companion health is going to come in and talk about managing diet, lifestyle stress. As a business owner, I think we can all acknowledge the fact that we probably bear too much of it. And we would like to enjoy some of the fruits for our labor as we get older. So, I think companion health will do a good job.
That’s on January 8th. I believe, or is it January 8th. I’m going to be a hybrid event in person. At co working space off the park road as well as online again, via WebEx, please be able to look out for those invites. And thanks [00:47:00] for joining us today, Harold. Yeah, thanks for having me. Awesome.