Adam Torres and Jarid Beck discuss captive insurance companies.
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Show Notes:
Many businesses can turn risk into profit through forming captive insurance companies. In this episode, Adam Torres interviews Jarid Beck, Co-Founder, Managing Director at Risk Management Advisors. Explore setting up captive insurance companies and what businesses could benefit from the strategy.
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About Jarid Beck
Jarid Beck is a Managing Director at Risk Management Advisors. He is a career specialist in the design, implementation, and management of alternative risk management (ARM) strategies including self-insured plans and captive insurance companies. Jarid has a diverse insurance background which allows him to deliver technical insurance solutions to clients in a wide variety of industries including construction, real estate, staffing, manufacturing, trucking, and finance.
Jarid was awarded the Associate of Captive Insurance (ACI) designation from the International Center for Captive Insurance Education (ICCIE) along with the Construction Risk Insurance Specialist (CRIS) designation from the International Risk Management Institute (IRMI). He is a noted authority on the use of self-insurance and captives as a tool for companies to reduce the cost of providing group medical benefits.
Jarid graduated from the University of California, Riverside with a degree in Business Administration.
About Risk Management Advisors
Risk Management Advisors is a national firm specializing in the design, implementation, and management of Captive Insurance Companies.
When you’re facing the most pressing business challenges, maximizing your success starts with the right partner. With Risk Management Advisors, you get a dedicated risk management consultant and partner with in-depth industry knowledge.
This perspective allows Risk Management Advisors to be creative and comprehensive and has helped the firm grow to be the 5th largest Captive Manager in the United States. The firm manages more than 1000 risk-bearing entities and annual premiums for our Captives exceed $1B.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of mission matters. My name is Adam Torres. And if you’d like to apply to be a guest in the show, just head on over to mission matters. com and click on, be our guest to apply. All right. So today’s guest is Jarid Beck and he’s co founder and managing director over at risk management advisors.
Jarid, welcome to the show. Adam. Thanks for having me been looking forward to it. Excited to excited to be on. All right, man, so we, we got a great topic on our, on our hands today. So turning risk into profit through captive insurance companies. I know many of our listeners maybe have heard of what captive insurance companies are, you know, but does anybody really know how they work, how they operate?
What’s the point in turning that risk into profit and how do you do it? Right. So we’re going to get into all of those today. Things and, and, and more, but before we do, we’re going to start this episode, Jarid, the way that we start them all with what we like to call our mission matters minute. So Jarid at mission matters, our aim and our goal is to amplify stories for entrepreneurs, executives, and experts.
That’s our mission. Jarid, what mission matters to you? Yeah, Adam, the mission that matters to me at least with respect to to business is really. Educating business owners and entrepreneurs that, you know, the status quo doesn’t have to be, you know, what they, what they get stuck with or subscribe to.
So our, our whole business model was built around, you know, figuring out how to take something that seemed inherently unfair you know, To the broader market and turn it on its head and come up with a more creative way to do things. So that’s what inspired us back in 2020 or 2004. And that’s, that’s still what keeps us going today.
Amazing. Love bringing mission based individuals on the line to share, you know, why they do what they do, how they’re doing it and what we can learn from that so that we all grow together. So great having you on. And I guess just to start. start you know, peeling back the layers in this onion here.
Let’s just start from the beginning. So how did you kind of fall into this niche? Let’s set the table there. Like where, where did that come from? Yeah. So I started my career as a, as a financial advisor. So it was retirement planning, investment planning, and, you know, quickly found that I preferred working on the business owner side of the table.
So it was defined benefit plans, welfare benefit trusts non qualified deferred comp corporate strategies to help business owners save money on taxes and protect assets. And it was in the course of doing this work that we stumbled upon Transcribed Captive insurance company and we actually lost a deal.
We were, we were proposing one structure and the attorney leans over. He says, Hey, this is, this is all well and good, but. Why don’t you just, why don’t you just fund more money into your captive? He’s like, Hey, thanks for all this boys. I’m going to do, I’m going to do what he just said. And we’re like, what’s, we were like, you know, our jaws at the day, we’re like, what are, what’s a captive?
So we, you know, we got out, we start researching you know, and again, that’s what we were always looking for the creative ideas you know, to cloud businesses, business against bigger competitors. And, you know, we discovered captives and said, wow, what an awesome tool. And we decided to make that me and my partner, we decided to make that the focus of our practice and our careers.
So we started Risk Management Advisors to, you know, basically design, implement, and help people with captive insurance companies. Let’s let’s start there. So captive insurance companies, again, many, many have heard maybe of them, but maybe don’t know exactly what they are. Like, like give us some insight there.
What is a captive insurance company? Yeah, captive. It’s one of those concepts kind of like maybe, you know, for the poker players in the audience, it’s, you know, easy to learn, but a lifetime to master, right? So you understand what it is at a base level, but then all the different permutations, depending on industry or whatever, a lot of different rabbit holes you can go down, but, but in its simplest form, a captive is an insurance company.
that a business sets up to ensure their own risks. So it’s a formalized version. People will say, you know, like self insurance. It’s a formalized version where you’re going out, you’re setting up a separate company and then getting it licensed to issue insurance policies. And there’s a couple of different motivating factors for doing that.
The perhaps obvious one is, you know, for businesses that are paying large amounts of insurance premium, But then they have really, really good losses. You know, they’re paying these dollars out and none of it’s coming back to them. So with the captive model, you’re setting up your own insurance company.
You go out and you buy reinsurance, which is, you know, insurance for insurance companies to protect yourself from anything catastrophic. And then you’re keeping that difference, bringing that, you know, bringing that money back down to your, you know, to your balance sheet, to your bottom line, which, you know, for the right, you know, for the right business, right line of coverage.
You know, very profitable. And so if we’re, if we’re in just to break that concept down, I don’t want to assume that everybody caught that. So just high level. And I know there’s going to be variations there, right? But that being said, the basic concept, I just want to make sure I got it. So you’re, you have a, you have a company, you know, you’re, you’re already maybe paying out, you know, X amount every year and claims or other things.
And you have this. Money going out. But your premium and like whatever you’re paying for that, like that’s just gone, like your money, your money’s gone there, but with with a with a captive insurance company, the reason you would set that up is because now you’re, there’s a potential for you to keep the difference, which could be the difference between what you’re paying for in re reassurance and then what you’re funding it with.
Am I, am I off on any of that? I just want to make sure we have some of that nuance there. No, that’s that’s correct. Yeah. So I’ll give you a quick example. Yeah. And this is one of my favorite stories because You know, we’re out at a conference in Arizona and we’re sitting there and my sales guy comes over and he says, he’s like, Hey, I met somebody from New York and it was a CFO from a construction company in New York.
And he was paying 5 million a year for his liability and his, his, You know, his business insurance, dying, not as brokers, not the other, but nobody could bring him a solution on how to save on that spin. So he ends up at all the way out cross country at our conference in Arizona. You know, I sit down, I was like, well, let me show you.
And this was, you know, 2012, but you know, so we sketched it out and, you know, long story short, you know, they now take the first million dollars of any claim, you know, that comes down the road, which sounds like a lot, but you know, it’s on a 5 million spend. Yeah. Well that lowered, you know, instead of paying the 5 million.
Now their reinsurance is only a million. And then their claims are about a million dollars per year. Yeah. So now you do the math, there’s anywhere between two and three million dollars of savings per year. That’s amazing. Right. And then so, you know, you compound that since, you know, 2012 and you’re talking about some really, really, you know, really, really big numbers.
And, and to compound on that fact. So. One, there’s the underwriting profit component of it, but then it’s also the financial efficiency of the way insurance companies are taxed. So in your business or my business, if we, you know, save or make an extra 3 million bucks, that immediately flows down to our bottom line and we pay taxes on it.
In the insurance company, we can put that into reserves to pay potential claims. And then now it grows tax deferred. Right. And you don’t need to be a finance major to know the difference between the benefits of, you know, investing pre tax versus after tax. Yeah. So, you know, when done, correct. more money in your pocket, but then it’s also a more financially efficient way to, you know, to, to grow those dollars.
That, that’s a great example. And, and it, what it shows is kind of like the, the impact that it can make by going this route. I’m curious on the, unlike size of companies and otherwise you mentioned, I think that you’re paying out about 5 million a year, which what is like, is it based off of. The amount of claims per year.
Is it based on the size of the company, the number of employees? I’m sure there’s going to be variations, but as somebody’s watching this interview or listening to it as they’re driving in their car and they’re thinking about, Hey, does this relate to me? Like, give me some of the, who it relates to. Yeah.
So I gave an example, which is probably out in the mid tier of, you know, what would make sense, but it can, you know, it can come way down from there. So I would say rule of thumb. You know, for a business that’s paying, you know, three quarters of a million, 750, 000 for their insurance program, there’s, you know, there’s programs and structures out there that would work.
You know, maybe we’ll get into it in a little bit, but amazing things happening on the group medical side. Cost is something that, you know, you hear about in the news and, you know, certainly business owners are concerned about and, you know, there’s solutions there for companies with as few as, you know, a hundred employees, you know, we’re not talking, you know, it doesn’t have to be a mega company like it used to be.
Yeah. These are all solutions, you know, middle market entrepreneurial. You know, family owned businesses are, are, you know, the types of groups that were, that were helping. And what about in industry industry? Is that agnostic or you mentioned construction or is there, you know, some versus others that make sense?
Yeah, it’s, it’s not industry agnostic entirely. It’ll just, that’ll just dictate where the pain points are. So if you have. You know, if you have, you know, a company with just a lot of employees, you know, the health insurance is going to add up. It doesn’t matter what, what industry you’re in, you know, if you’re, if you’ve got a thousand employees and they’re all on your health insurance, it’s probably, it’s probably a 10 million spend right there.
You know, if you’re a staffing company or somebody with a lot of payroll, then workers comp might be your pain point. If you’re swinging hammers or driving trucks, then it’s going to be your liability, your auto. You know, so it’s, it’s the industry kind of dictates where the pain points are. And then whether it makes sense or not based on the size.
And then, you know, you mentioned claims, obviously, you know, you want somebody with low claims. Yeah. Well, you mentioned something happening in the, in the group healthcare side. Well, what’s happening there? Like what’s going on in that? Yeah. So, I mean, if you go back and look, you know, since all the major health insurance companies, you know, there’s like five of them, right.
And then, you know, PPOs and HMOs are the types of plans that they offer. And, you know, that’s been the popular model for, let’s just say the last, you know, 2025 years. And since those models came into effect. The cost of health care and the cost of health insurance has just You know, you wish you would have invested in the, you know, you wish you could have investment.
I say it’s not going down. Yeah. I mean, it’s, it’s, it’s a hockey, you know, it’s a hockey stick like trajectory, unfortunately. And, and what companies or businesses don’t realize is, you know, they’ve, they’ve delegated this big spend. You know, this big line item on their P& L, they’ve delegated to these insurance companies who don’t have their best interests at heart, right?
They answer, they answer their shareholders, right? So they’re happy to, and do you think that is because people just don’t know or it’s status quo or it’s like, what do you think that is? Like, why do you think that is? Is it because you don’t talk about it often enough? Like, what have you found? Yeah, it’s, it’s status quo and it’s black box, right?
So the health insurance companies, it’s hard to shop around. It’s hard to like, eh, it’s like complicated, hard to shop around. And then they black box you off from your data. They just tell you like, Oh, your, your losses were, your claims were really bad or, you know, everybody else’s claims were really bad either way.
We got to charge you more. We’re losing money, but then, you know, but then you go to the, you know, you go to their financials and they’re actually making quite a bit of money, you know? So they’re. You know, they’re messaging it like privacy and like all these other things. Right. Like that just behind HIPAA and just say, Hey, we don’t have to, you know, we don’t have to give you your, you know, we don’t have to give you your data.
And it just made it really challenging to, you know, it was really only the biggest companies that could afford to kind of break that, you know, break that model open and, and, you know, try to do it themselves. But again, now. You know, it’s, you know, there’s strategies available for, you know, smaller, you know, smaller companies.
And the problem has become so profound. I mean, after payroll, a lot of times the next biggest line item is the health insurance is the group medical spend. And, you know, if you’re a CFO trying to budget and you’ve got, you know, 10 to 30 to 40 to 50 percent increases every year. How do you, you know, how do you account for that?
So that’s, that’s been a big focus of ours is sitting down and saying, you know, Hey, it doesn’t have to be this way. You know, especially with, you know, all the data tools that are out there. I mean, if you, you know, if you can get somebody out of a traditional model, get them into a captive structure, there’s tons of re insurers out there that’ll, that’ll backstop the risk.
And then you get access to your, you know, you get access to that data. And you can, you know, carve out, cleave out all the waste. I mean, 30, 30, 35 percent savings are possible. And I used to be reluctant when we first started implementing these strategies, I was like, man, that’s a big number. I was reluctant to say that, you know, now, but you’ve seen it time and time again.
So, yeah, proof’s in the pudding. I mean, I’ve got, I’ve got the, you know, I’ve got the receipts on all these, you know, these groups who’ve helped and it’s not just one year. It’s sustainable and it’s just, you know, we talked about it earlier, you know, like, Hey, why, you know, why are we still excited to do this?
It’s, you know, the people that. You know, that one are open to seeing things a different way. And then, you know, let’s, you know, let’s, let’s do this. And then having that success together is, you know, is awesome. Do you see as these, as these plans become more available and and, and they’re improved and there’s more opportunity there, do you, is this a, just in general, the captive insurance industry as a whole, is it on, is it on an uptick?
Like as people become more aware, or is it like, like, how would you just characterize the overall industry right now? Yeah. Huge uptick. So I would expect that because the more pain, especially with social media and like you coming on shows like this to, to, you know, educate the public on it, like that kind of thing, it all matters.
And the market, you know, I mean, we just talked about health insurance, which is one of my, you know, you know, passion spots to help people, but that’s not the only difficult area. I mean, auto right now is very difficult, very expensive. Property, you know, if you, if you own a lot of properties you know, the cost increases there, the lack of coverage, you know, it’s, it’s very difficult.
And then, you know, liability lines too. So so you’ve got the need and there’s a lot of innovation going on, not just in the health insurance side, but on the, on the liability side. So, you know, people, you know, my peers coming up with solutions for other, you know, other industries, other, you know, other verticals.
So it’s, you know, kind of, you know, kind of need meeting you know, the, the willingness or the supply of, of ideas and demands all, you know, all time high. Talk, talk to me about the process, like what it looks like for, you know, new, new, new business owner comes into your, comes into the, you know, the door and they’re like, Hey, I heard you’re the guy like, like, where do you go from there?
Yeah. That’s shifted over the years because You know, like you said, most people, maybe they’ve heard of captives or somebody will mention it. And so a lot of times they’ve come in, you know, they’ve Googled it. They’ve done some, you know, they’ve done some research and, and which is nice because now, you know, when people arrive at the basis of the conversation, you’re not starting at scratch, scratch.
Yeah. We don’t have to start it. You know, this is what a captive is. Right. So, you know, people, you know, people kind of have a feel for it and then it’s like, all right, well, Hey, what is your pain point? Why are you. You know, why are we here? You know what is captive or what is, you know, what does this hold for you?
And we get into that conversation you know, what their goals are. And then we figure out if, you know, kind of do some prequalifying to figure out if they’re, you know, if they’re a fit and if it’s worth, you know, taking a deeper look and to the extent it is, we would. You know, get some, you know, get some data.
You know, similar if you’re making a, you know, submission to an insurance carrier, we get the company data, revenue, number of employees copies of the policies, etcetera. And then we, you know, we do an analysis and say, You know, if you set up a captive, this is, you know, these are the different ways you could structure it, and this is what it would look like.
And then that serves as a base for a more involved discussion about, you know, go forward, don’t go forward. Do we want to do this? Do we not want to do it? And then to the extent they say, yeah, that looks great. Let’s do it. Then we would set it up for them, help them manage it. And, you know, and then kind of the ongoing consulting aspect.
Now, in terms of the implementation side of things, now, obviously this is going to change for, you know, size of business, what, what plan you’re doing as fast as they can implement or otherwise, but in general, if there is a general on this, like how long does it take to implement something? It can vary, but You know, the implementation now, the actual setup of the insurance company, that’s, that process is, has become well oiled you know, it’s a six, you know, it used to be where that, that might take three months, four months now that can be done in four to six weeks.
So it’s very, you know, very organized. You have great relationships with the regulators that you’re doing this with. What tends to take the time is the, is the strategy piece of it. For sure. Yeah. In terms of. You know, education, you know, even if they’re coming in having read some stuff, there’s still a lot of education that goes on as you can imagine on how things work.
And so, you know, that’s, you know, that’s where it’s always good to get the head start. So we get a lot of our business from other advisors and, you know, brokers out there. So, Hey, our clients want captive and the worst thing that can happen is if their renewal is January 1st and they show up on December 1st, come on, you know, Hey, we want to look at captive.
It’s like, ah, man, that’s not going to happen. At least not, you know, at least not this year. So, you know, the best time. You know, frankly, if somebody was looking, you know, it’s something that renews on one, one, the best time to start the discussion would, you know, it would be the summer now, you know, and again, it’s for that educational.
Runway, if you will. Yeah. Well, Jarid, I’ll tell you this is, I know I’m much more educated on captives, how they work, the benefits of them. I know my audiences as well. I mean, what’s next, what’s next for you? What’s next for the company? What’s next with your plans? Yeah. So it’s interesting to look back.
You know, we started, it was me and my partner in a Jack and Jill office with, you know, one, you know, one assistant. And now we’ve got, I think there’s, you know, 50, 60 people on the team. Congrats, by the way, that’s no easy feat. A lot of entrepreneurs that watch this, man. Congrats from one to another. It’s amazing.
No, thank you. And that was, frankly, that was the why early on was just to build something, you know, show people, you know, Hey, I can, you know I always liked, you know, enjoyed giving advice. You know, so that was, you know, like I said, that changes over time a little bit, but yeah, I mean, you know, we actually have, Different levels to the org chart.
Now that was interesting, isn’t that, isn’t that the wildest thing? Yeah. Sometimes I look back and I’m like, where are these people coming from? What’s going on in a good way? I mean, in a good way, I should say, yeah. And, and, you know, and it gives me new added respect for, you know, my clients that have, you know, again, 500 or 300 or a thousand employees, but and you know, I think we’ve grown to fifth largest captive manager out there behind the large publicly traded companies.
So our, our goal is to keep, you know, doing quality work and, and, you know, crawling up that crawling up that list. It’s amazing. A great entrepreneurial story. Love to hear it. And then I also love you know, one entrepreneurs helping other entrepreneurs, right? Like, so that when, you know, somebody is working with you and your team, like they know, they know like what type of company, what type of culture they’re working with.
So I think it’s an amazing story. Well, and if I could touch on that, that is, that has, that is the cool thing. So, you know, one, we’ve gotten to see all different types of of businesses, you know, again, we’re, we’re across industries here and the appreciation for the different ways and the niches that, you know, people make money and grow businesses.
And, and, you know is, is something that’s been fascinating, but then you’re right. It is the, also the ability to, you know, sit there and say, Hey, I’ve, I’ve. You know, I manage budgets. I’ve made, you know, we’ve had to make payroll. I’ve been in your shoes. Yeah. Yeah. You know, and I think that, you know, I think that matters.
So, yeah, I do too. It all matters. Jarid, if somebody’s listening or watching this and if they want to go check out risk management advisors or to connect with you and your team, how do they do that? Yeah. A lot of good, a lot of great content out there. So www. riskmgmtadvisors. com is the website. We’ve got a lot of eBooks, case studies great educational material there.
And also you know, check us out on YouTube. A lot of, a lot of good video content. You know, good podcast conversations over the years. And then, you know, Facebook, LinkedIn, Instagram as well. And for everybody listening, just so you know, we’ll put, we’ll put the website links and all that stuff in the show notes so that you can just click on them and head right on over.
And speaking of the audience, if this is your first time with mission matters and you haven’t done it yet, hit that subscribe button. This is a daily show each and every day. We’re bringing you new thought leaders, new ideas, new business owners, new founders. We don’t want you to miss it. The thing, new ideas, the important one and the important thing here just understand for those of you out there that are thinking captives otherwise, what is this talking about?
That construction example, if you’re dealing with large amounts of pay out there think about that. That’s a real case study. So if you don’t know what I’m talking about, rewind this one, listen to it again, you want to hear that. And Jarid, again, thank you so much for coming on. This has really been a pleasure.
Hey, Adam, thank you for having me. I appreciate it.