What should you do before you form a captive?
Start from the risk, and go in with your eyes wide open
Mark Wiedeman starts by drawing the line around his own role: as regulators they typically are not in a position to make recommendations or policy suggestions for a company, and cannot tell an owner what to put in a business plan. Inside that limit his advice is to do the diligence and start from the risk. Figure out what is keeping you up at night, understand your risks, understand what you are wanting to do, and when you talk with your managers, auditors, actuaries and lawyers about how to structure a program, go into it with your eyes wide open. He adds that an owner unsure whether something fits within a statutory provision is always welcome to call the department. Michael Schulz makes the harder point: a lot of people will be pulling for one thing or pushing for another, and in the end the owner has to go with what feels right to them.
The disclaimer at the front is not throat clearing, it is the shape of the advice. Wiedeman says regulators are not in a position to make recommendations or policy suggestions, and cannot tell an owner what to put in their business plan.
That is why everything he offers afterwards is about the owner's own preparation rather than about structure. He is not allowed to design the program, so he tells you how to arrive able to design it yourself.
Key takeaways
Regulators cannot make recommendations or tell an owner what to put in a business plan, so the preparation is the owner's own.
Wiedeman says to start from the risk that keeps you up at night and go into adviser conversations with your eyes wide open.
Schulz says advisers will pull in different directions, and the prospective owner has to decide for themselves.
The preparation starts at the risk, not the entity. Figure out what is keeping you up at night, understand your risks, and understand what you are wanting to do.
This is the second time in the conversation he puts it that way, and it is the same test he applies from the other side of the desk when he says he can tell when a captive is being formed for the right reason.
From the conversation
Tennessee Department of Commerce and Insurance
Captive Insurance Section, State of Tennessee
“we can't tell them what to put in their business plan”
This answer begins at 23:00 of the full conversation. Watch or listen to the whole thing.
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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