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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summerThe Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last LongAccording to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond InvestorsHigh-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance AgentYour insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never OverlookThis estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.
