We continue last week’s look at captive insurance companies as an asset protection, risk management, and wealth accumulation vehicle for physicians by providing some basic due diligence questions. I am frequently called upon by clients to provide an opinion or sit in on a call or meeting with a prospective captive provider. Sometimes I am familiar with the specific provider and their work and reputation; more often I am not and have to ask some basic questions to help the client understand the details and the actual experience of the provider.
In one case, I was on a conference call with five people and the client and my questions revealed that the "provider" sourced by the financial advisor was an ex-employee of a larger group that had branched out on his own, had one secretary, and had to date never completed a captive by himself (Yikes!). These are some of the questions I ask or provide to help vet the right professional provider for this exceptionally technical and compliance heavy strategy.
1. Is our relationship bound by attorney client privilege? Not required, per se, but a good idea.
2. How many captives have you personally created?
3. How long have you been creating captives? Experience counts here; if they’ve done a few that are all very new, we don’t really know how they held up yet.
4. Do you have E&O or professional malpractice coverage that covers our relationship?
5. How old is the oldest captive you have created? See number three above.
6. What is the first-year, set-up cost of establishing a captive?
7. What are the recurring annual maintenance costs?
8. Are your services "turn-key" or will I need to pay outside counsel for issues like accounting and compliance? If yes, ask if they have specific resources they work with, and what their fees are as well, then qualify those resources the same way.
9. How many of your captives have been audited?
10. Of those how many have been "no change" required after the audit?
11. Does our contractual relationship include the cost of defending and responding to the audit?
12. Can you provide client/professional references?
13. How many years should I expect/plan to maintain the structure?
14. How can I collapse or wind my captive down if I need to?
15. What are the costs involved in doing so?
16. What is your normal exit strategy for captive owners?
17. What jurisdictions do you set up captives in?
18. What are the advantages of those jurisdictions over others?
19. What are all the additional risks the captive can insure me against?
This list is by no means complete, but it should give you a good start on two important issues; determining the qualifications of your provider and the costs and benefits they are bringing you. As with any complex legal and financial strategy, the question should always be, “Is this the right strategy for me?”
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