Private Insurance: Is it the “New Kid on The Block”?

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Private Insurance is a great option for businesses that want to protect themselves against unexpected risks.

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Private Insurance. You may have heard of private insurance. This is likely a new concept for you. However, it is worth looking into if you are a business owner in 2021.

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Private insurance is a term that describes a program that allows closely held businesses to purchase insurance policies to cover specific losses related to enterprise risk. Private insurance gives businesses the ability to directly procure insurance through an established insurance structure and not through traditional insurance channels. This allows them to access alternative risk transfer options.

What Risks can you Insure?

The topic of enterprise risk is very popular at the moment. These are the high-severity, low-probability exposures that are currently top of mind while the country adjusts to the economic effects of these unprecedented times. This enterprise risk has become more dangerous with the emergence of COVID-19. This risk is being transferred to third-party insurance by businesses across the country.

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Private insurance allows a company to directly-procure enterprise coverage for loss in net income due to various unfortunate events, such as the loss of key personnel, loss to key customers, or loss to key suppliers.

Businesses have two options: to transfer the risk to an insurance company or seek out insurance through other sources. This is when alternative insurance offers superior risk management that allows them to outperform traditional insurance.

Private Insurance can be more than just an insurance policy. It can also become an extremely valuable investment opportunity.

What is Private Insurance?

A business buys insurance from an insurer. The insurance carrier binds the risk and issues policies to the company. After that, the reinsurance carrier reinsures some of the risk to insurance. Private Insurance however, the reinsurance company gets 100% of the premiums earned from the sale of policies. This carrier gives investors who are named by the business that purchased the policies an opportunity to invest in the performance of a reinsurance carrier.

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Here’s the key: Reinsurance companies have individual funds that fluctuate with the claims experience over multiple policy-periods. To participate in the financing of individual policy-linked claims, any dollars that are not used for claims or underwriting expenses will be deposited into these policy linked accounts.

These accounts can experience tremendous growth if they have a good claim history. The investor receives the only-benefit of any assets accumulated in these policy-linked account-linked accounts if the business ceases to purchase these policies.

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The bottom line

Private Insurance is a highly specialized transaction in which a business directly-procures insurance. The reinsurance carrier then distributes the risk to hundreds of insureds across the country. Investors also benefit from the underwriting profit. This structure can not only protect you in the future, but also provides protection for your present. Private Insurance is the way to go in a world filled with uncertainty. Potent Tax Changes Force Business Owners to Make Big Choices