Looking for guidance on self insuring.

[Richard W.]

We own and run a mid size retail portfolio in Florida.

Renewal rates for PL insurance have gone through the roof, at almost triple last year premiums for some of our properties.

We decided to setup a captive to insure our properties. Our parent company is well capitalized and we can absorb losses, if needs be.

Any advice where I can turn to get the process started to setup a captive? Better still, any referral to pros that can help with the process?

Thanks.

[Ronald Rohde]

Bump for you, I'm sure you are reviewing loan docs, but I see lots of specific rules on self insurance for debt covenants.

Not sure about the setup side!

[Cameron Moore]

I have never heard of this but being in FL it makes sense LOL, following this thread. 

[Richard W.]

Quote from @Ronald Rohde:

Bump for you, I'm sure you are reviewing loan docs, but I see lots of specific rules on self insurance for debt covenants.

Not sure about the setup side!

 Our properties are unencumbered, so we have lots of flexibility.

[Richard W.]

Quote from @Cameron Moore:

I have never heard of this but being in FL it makes sense LOL, following this thread. 

 Lots of carriers left the state last year and continue to do so. In fact, we are unable to even get a quote on one of our beachside properties, even with no claim history!

There is a major insurance crisis in Florida and it is impacting everyone. This has the potential to wreck havoc with the investment climate here.

[Henry Clark]

I would recommend to steer away from Self Insuring:

1.  Are you using a broker?  Get one and have them go to market.

2.  What are your deductibles?  See what the pricing is for different levels.  $5,000; $20,000; $50,000.  Have your company break the premium down and attack the highest items first.

3.  With 2 above, then I might do self insurance for the deductible portion.

4.  Look at prevention measures.  What type of retail portfolio?  Restaurants, clothes sales, hardware store, etc.  Identify your risk and improve measures.

5.  The main reason I would stay with an Insurance company, is they supply the Attorneys and other experts.  If you self insure, you have to add those fees on top of specific exposures.

6.  Legal structure of the company and properties.  How are the individual properties titled?  Can you do a sales/Leaseback to a more protected company, with limited resources for claims.  

Basically:  A.  Look at creating legal barriers., B.  Look at limiting exposure., C.  Look at insurance premium reductions.

[Matt Devincenzo]

I have a friend who works in insurance...it's been eye opening learning the modelling and risk analysis that goes into a premium determination. It has also been eye opening to understand the reinsurance behind it as well. Your insurance policy has an insurance policy so if a carrier has too much loss in a specific area or loss type, then they can be reimbursed some of the cost. In talking with him I've learned that it really takes a large scale of business to compete with the actual rate that you get from the carriers. 

Since you don't have loans and can make your own insurance determination you have more flexibility, but you should understand that you're taking more risk yourself than the insurance company would be. It may be best to consider insuring your own deductible at a very high level to reduce the total premium, but not be as exposed as self insuring completely.

[John Mocker]

Richard,

If you do go ahead and self insure the property side of the Insurance, you may still want to purchase Liability coverage for the properties.  Having the Insurance carrier handle those type of claims may be better than self insuring those claims.  

[Jason Bott]

@Richard W. we have brokers we use to help set it up. I'll drop you a DM.

Before you go down the path a of a true captive, (hiring a TPA and paying for the infrastructure to be come a legit captive) you should consider simply buying a high deductible Property policy ($100k or more) along with a GL & Excess policy.  

I have never personally set up a captive, but have set up several clients up with the 2nd option.