insurance

Is Private Insurance the ‘New Kid on the Block’?

For businesses worried about covering themselves for enterprise risks that are unexpected or even unthinkable, Private Insurance can offer some protection, along with a possible investment opportunity.

Private Insurance. Have you heard of it? Chances are this is a new concept to you, but as a business owner in 2021, it is one well worth exploring.

Private Insurance is a marketing term describing an exclusive program that allows a closely held business to purchase insurance policies for specific losses associated with enterprise (business) risk. By offering businesses the opportunity to direct-procure insurance through an already established insurance structure, and not through the traditional insurance avenue, private insurance delivers a transparent turn-key access into the alternative risk transfer space.

What Kinds of Risks Can You Insure?

Enterprise risk is quite a popular subject at the moment. These are the low-probability, but high-severity exposures that are now top of mind as the country still adjusts to the economic side-effects of these unprecedented times. The age of COVID-19 has increased the hazards for such enterprise risk. Businesses across the country are seeking to transfer this traditionally self-retained risk to a third-party insurer.

Private Insurance allows a business to direct-procure enterprise risk coverage for loss of net income due to a variety of unfortunate events — such as loss of key personnel, loss of a key customer, loss of a key supplier, and more.

The options for businesses are to transfer this risk by purchasing insurance from a traditional insurance carrier or to seek insurance through alternative means. The latter is often popular when a company feels alternative insurance has superior risk management systems affording them the capacity to outperform the black hole of traditional insurance.

Moreover, Private Insurance offers even more than an insurance policy; it can become a tremendously valuable investment opportunity.

How Does Private Insurance Work?

As with most insurance transactions, a business purchases insurance from an insurance carrier, and that insurance carrier binds the risk, issues policies back to the business, and then reinsures a portion of that risk to a reinsurance carrier — insurance for insurance. However, in Private Insurance, 100% of the premium earned through the sale of policies gets ceded to the reinsurance carrier. That carrier allows investors, who are designated by the business purchasing the policies an investment opportunity connected to the performance of the reinsurance carrier.

Here is the key: The reinsurance company has individual funds that rise and fall with claims experienced over the course of multiple policy-periods. Any dollars not used to pay claims or underwriting expenses are deposited into these policy-linked accounts to participate in the funding of individual policy-linked claims.

With good claims experience, these accounts have the potential for tremendous growth over time. When the business no longer purchases these policies, the investor has the sole-benefit of the assets that have accumulated in these policy-linked accounts.

The Bottom Line

At a high level, Private Insurance is a robust and proprietary transaction whereby a business direct-procures insurance, the reinsurance carrier distributes this risk among hundreds of insureds throughout the country, and the investors benefit from the underwriting profit of the reinsurance carrier. This structure not only protects you in the present, but it can also secure your future.

In a world full of more uncertainties than ever, one thing is certain: Private Insurance is the way of the future.

About the Author

Jeffrey M. Verdon, Esq.

Managing Partner, Jeffrey M. Verdon Law Group, LLP

Jeffrey M. Verdon, Esq. is the managing partner of the Jeffrey M. Verdon Law Group, LLP, a Trusts & Estates boutique law firm located in Newport Beach, Calif. With more than 30 years of experience in designing and implementing comprehensive estate planning and asset protection structures, the law firm serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives.

Most Popular

5 Beaten-Down Stocks to Buy on the Dip
stocks to buy

5 Beaten-Down Stocks to Buy on the Dip

The market has delivered some nauseating volatility of late. The good news? That has teed up a few great stocks to buy at a discount.
September 27, 2021
10 Best Stocks for Rising Interest Rates
stocks

10 Best Stocks for Rising Interest Rates

The 10-year Treasury yield is hovering near its highest level in months. Here are 10 of the best stocks to buy in a rising interest-rate environment.
September 30, 2021
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
October 4, 2021

Recommended

6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement
retirement planning

6 Things You Can Do Right Now to Ensure Your Money Will Last in Retirement

Your retirement plan needs to take a holistic approach. Because there are so many decisions to make, it’s easy to get lost in the weeds. Follow these …
October 15, 2021
7 Things You Can Do Now to Prepare for Medicare’s Annual Enrollment Period
Medicare

7 Things You Can Do Now to Prepare for Medicare’s Annual Enrollment Period

It’s that time of year again: Time to see if there’s a Medicare option that better fits your needs – and your budget. Don’t delay. Here’s where to sta…
October 14, 2021
Yogi Berra Quotes Investors Can Live By
investing

Yogi Berra Quotes Investors Can Live By

Baseball legend Yogi Berra was wise, in his own muddled way, about more than just sports. His words hold truth in life – and in investing. Here are th…
October 13, 2021
Ditch Your Dying Career for a Dirty Job Instead
careers

Ditch Your Dying Career for a Dirty Job Instead

How secure is your job in a world of artificial intelligence? Technology is putting many careers on the endangered list, but some jobs just can’t be d…
October 12, 2021