Choosing the Right Captive 831(b) Manager in Today’s Market

The ever-evolving risk landscape demands proactive business protection. Captive insurance programs, or 831(b) plans, continue to offer a unique solution for mitigating emerging risks and achieving tax efficiencies. But as with any financial strategy, choosing the right captive manager is essential.

This article explores ten essential questions you should ask a potential captive 831(b) manager:

1. Meeting the Four-Part Test: Ensure the manager understands the four criteria an 831(b) plan must meet: risk transfer, risk distribution, fortuitous risk coverage, and adherence to insurance principles.
2. Premium Holding: Inquire about how premiums are held. Avoid managers with limited transparency or those holding funds in "dark pools" with minimal oversight.
3. Premium Pricing: Verify that premiums are set by actuaries or independent underwriters based on sound risk assessment, not arbitrary factors.
4. Fee Structure: Understand the fee structure. Opt for transparency and clear pricing models, whether flat fees or a la carte options.
5. Claims Process: A well-defined claims process is essential. Look for managers with a documented system similar to traditional insurers, including claim filing, investigation, and settlement procedures.
6. Audit Defense: Since 831(b) plans attract IRS scrutiny, choose a manager who offers support during potential audits. This includes access to legal and tax resources and financial backing for defense.
7. Premium Reserve Management: 831(b) plans function similarly to regular insurers. Inquire about the investment strategy for premium reserves. Be wary of managers suggesting high-commission products or risky investments.
8. Risk Sharing: Understand how the manager shares risk. Some retain a portion of the liability, demonstrating a vested interest in the plan's performance.
9. Risk Management Expertise: Choose a manager with a proven background in risk management, including property and casualty insurance, cyber risk management, and relevant professional designations. Tax expertise alone is insufficient.
10. IRS Promoter Audit History: The IRS often audits captive managers. Investigate the manager's experience with such audits and their plan for handling a potential audit.

By asking these key questions, you can gain valuable insights and choose a captive 831(b) manager who prioritizes compliance, risk mitigation, and your company's financial well-being in today's ever-changing market.

Ready to see if an 831(b) captive plan is right for your business? Schedule a free consultation with our team of captive insurance experts today!

Kenner French, is a former small business contributor at Forbes.com, author of three books, an executive at AI-focused VastSolutionsGroup.com, a keynote speaker, and a Dave Matthews Band fan!