STRUCTURING ALTERNATIVE RISK PROGRAMS

TRANSCRIPT

[Bruce Silverman ]Hey, everybody, welcome into another edition of Managing Risk for Tomorrow, Today. He is Adam Perea he is the vice president of Elite risk insurance aperea@eliterisk.com, 602-882-1213. Adam, good to see you again. You too, Bruce. Let's just jump right into it. Who should be involved in creating the alternative risk program taking advantage of the alternative risk program?

[Adam Perea] That's a great question. I mean, really, when you look at it, if you're using this as a comprehensive risk management tool, we want everybody involved that needs to be and that can vary from company to company. You know, usually, we start with the owners buy in, right? Sometimes we have brokers that say, Hey, I want to show a client this, I want to propose this to them, which is fine to get started. But once we get past that kind of initial phase, we really want to make sure everybody's on board. And who does that mean? If you have a CFO, CPA internally or externally. You know, if you have a risk manager, if you have attorneys, whether they're tax attorneys or secession planning attorneys, we really want to make sure that everything everybody involved understands what we're doing. And we don't interrupt any other plans or create additional problems. You know, we go back to on one of our previous episodes, we talked about looking at looking at agreements like their marriage, right, understanding how to get out of it. Well, if done right, a an alternative risk program can enhance a number of different things, or even just outside of your risk management program. So we want to make sure we're not making decisions, that upset the applecart somewhere else. And the best way to do that is to get everybody that needs to be involved. 

[Bruce Silverman] Well you brought up owners, that makes sense, then you start getting into other roles within a business, the CFO, the risk manager, the accountant, the controller, what happens or how difficult that's actually how it should be, how difficult is it to get everybody on the same page, especially with companies that have fractional CFOs, or have an outside CPA but don't have an internal bookkeeper or controller, where you have businesses today that are set up differently than they were years ago? Because you have the specialists that are providing help and assistance to businesses? But aren't there full time? 

[Adam Perea] Yeah, I mean, it really comes down a lot of the times to the owners management style, right? Sometimes we run across owners that say, tell everybody top down, we're doing this figure out how to make it work. And that's the marching orders. Other times, they say, Hey, I think we should do this, let me know what you guys think. Right. So there's two different styles. Neither one's easier than the other. But, you know, we've seen a number of businesses that are very successful, and they're just a mess. And as we get more into it, with their, with their ownership structure, and then their CPAs or CFOs, CEOs, that, you know, it started as two guys, you know, in a small building, and they were just happy to, to make enough widgets to get them, you know, through the day. And next thing, you know, they've got a $40 million manufacturing facility. And they're, they're kicking butt. But they didn't start. They didn't, they didn't plan for it to be that big. So now it's like one LLC with two owners. And in the end, you've got a lot of their advisors pulling their hair out saying, we would have done this so much differently. 15 years ago, right, hindsight is 2020. So we're trying to uncover you know, and not try to figure out the best way to move forward. And then you have others that have structured businesses from the get go with the mindset of if this gets bigger, here's how we're going to be set up. So it's much easier. So you know, there's always a number of different factors when we're looking into a new prospective client, which is why the asking questions is important early on, right? Why are you doing this? What's the goal? What's the objective? What else do you have going on? Because we don't want to start down the captive path and realize midway through that they're going through a restructuring because they've got to, you know, form different entities within their company for the secession planning or you know, because the partners agreements are need to be altered. So you really want to get everybody on board and say, Hey, where are you guys at? Where do we fit in ? And how do we work together?

[Bruce Silverman]I guess it comes down. You had mentioned asking the questions, it's really reading the tea leaves, and for your business and your agents, and agents in general, to ask the questions to uncover the needs. And make sure that that risk factor is addressed. But to make sure also, as we've talked about, in previous episodes, the agreements and the plans and the structure, they all have to come together to benefit everyone involved.

[Adam Perea] Yeah, they do. And you got to get buy in from everybody, right? And captives can be sometimes kind of a taboo word where, you know, CPAs, or somebody within the organization doesn't want to hear that word, because they understand or know of only the abuses. So, you know, if you have a CPA, an external CPA, or a CFO, you know, that's doing things internally. They're going to pay premium to this captive company. So they need to feel confident, because if you're the CPA doing the tax return for the business, you've got tax preparer liability. So if you're signing off saying, yes, they paid insurance premiums to a legitimate insurance company that comes back to them. So you know, it's having that discussion to make sure they're comfortable with that. Making sure that we understand what the they have a tax attorney or an estate planning attorney, you know, how does this intertwine with that and make sure they understand this doesn't have to be a hindrance, right. So there's, there's obviously, the goal of this is a risk management tool. But we could cause more problems if we're not careful. And we don't do it for other reasons. But you know, there could be some ancillary benefits that could that can help situations. So you know, that's why it's important to get everybody involved.

[Bruce Silverman] Sounds like education needs to be a very big part of this, you know, when when businesses are setting up captives, is that something that every CPA is familiar with? Or isn't a specialized area, where there's only a finite number of CPAs that truly understand and appreciate how to structure captives and use them to the business's advantage?

[Adam Perea] You know, there's varying levels of CPAs, right? There's the CPAs, that under understand what an 1120 PC is, which is the tax form that insurance companies have to file. So do they understand the nature of the beast to that level, where they can actually prepare and file tax returns for a captive and understand how everything works, then there's the next level of I have a good understanding of the structure and the benefits of captives, then there's the next level that Well, I have some clients that have been into captives, I don't really get into it too much. And then there's some that you know, the next level, hey, I'd like to learn a little bit more about captives. And then you get to the other side of the of the line to where CPAs say, No, we're not doing it, we're not touching it. We're not looking at it. We're not we're not we're not going to get involved. So there to answer your question, there's varying levels, right. And to your point, I spent five, six years as as, as an elementary teacher, and that's one of my favorite parts of this job is going through and doing that education, and not getting frustrated, right? I see. I see, folks, a lot of times get frustrated. And they get the same questions over and over and over. And I caught myself getting upset, you know, having to answer the same question from their CPA, then their attorney, then their broker, then they're, you know, whoever it was, and I gotta remember my to myself, it's probably the 100th time I've been asked that question this month, but it's the first time they've asked it.

[Bruce Silverman] Correct, yeah, that's, that's a really, it's a really interesting perspective that you and all agents need need to keep in mind.

[Adam Perea] Yeah, and that just goes through, you know, like I said, that the education part of it and really understanding what their objection is, right? And really, what are you fearful of? Is it just additional workload? Is it Are you truly unsure about the structure and the liability that it could bring your company, so really, you know, just understanding where that hesitation or fear comes from? And I'm not going to try to convince them otherwise, I just want to make sure they have the correct information. So they're making an educated decision and not one out of fear or, you know, just flat out not just because they will lie. exempted. So that's where that's where we try to get most of the time.

[Bruce Silverman] It seems to me going back to the marriage analogy that we talked about in a previous episode, that when you start bringing in the owner, and the CPA and the CFO and the broker, and the attorneys and the employees and everybody else that's involved in this transaction, everyone has a role. There's an officiant, there's a bride, there's a groom or groom and a groom or bride and a bride or then you got the groomsmen and you have the bridesmaid, and and everyone there has their own set of thoughts about that marriage. And it all comes together in that agreement. Isn't it great? How I just rolled it all up into one nice, neat ball?

[Adam Perea] I'm going to take that? And I'm going to use it because it was it was free. But you know, I mean, you're absolutely correct it you know, we talk about marriage a lot in in some of these transactions, and you just put it perfectly. I mean, earlier this year, I was the officiant we had two friends of ours got married, and I was lucky enough that they let me officiate the wedding. And you're right. I mean, everybody has their place. And if no matter how big or how small, as long as they fulfill their obligation, everything runs smoothly and beautifully. And that's the same way, just like you're talking here, you know, if everybody's fulfilling their duties, this can be a beautiful thing, right? And, and there's going to be people that are hesitant or unsure. And we like to make sure we we don't want to disrupt any relationships, you know, we want the broker to No, we're not trying to replace you, we're not trying to get rid of you, we're not trying to get you less commissions, right, we want that broker to know, we're here to work with you. If we can put this program together and incorporate a certain level of self insurance, you know, that client is going to be happy, they're not going to want to look for cheaper insurance or a better agent, they have the most beautiful thing they can, right they've, they've got those those vows of matrimony in front of them, and then they're and they're happy. So we try to get the brokers to to understand we're not, we're not here to get rid of you, we're here to help you strengthen this relationship, explain how important they still are to this whole thing. And even more. So as the client takes on a certain level of self insurance. They're going to need a broker to rely on to ask questions to help guide them. So you know, that's that's really where, you know, the education and getting everybody together, right? Getting the wedding party together to say, hey, all of you are equally important. Some have bigger roles than others, but we need everybody  to work together.

[Bruce Silverman] And then at the end of the day, it's all about the band or the DJ in the food. 

[Adam Perea] That's it, you know, I heard a joke, or maybe I saw it on the internet that they were at a wedding and they said, Hey, stand up next to the person who is who has helped you make it through marriage for all these years and they said the bartender was almost crushed to death, so.

Perfect place to stop is Adam for a vice president of Elite risk insurance aperea@eliterisk.com, 602-882-1213, Managing Risk for Tomorrow, Today. Adam, always a pleasure, enjoy, crank up the music and put together those successful marriages.

[Bruce Silverman] Perfect place to stop is Adam for a vice president of Elite risk insurance aperea@eliterisk.com, 602-882-1213, Managing Risk for Tomorrow, Today. Adam, always a pleasure, enjoy, crank up the music and put together those successful marriages.

[Adam Perea] Thank you, Bruce. I appreciate it. And I'm sure we'll see you again soon.

[Bruce Sliverman] Looking forward to it.