Over 2 million businesses operate in the U.S. commercial real estate industry. Strip malls, office buildings, laundromats, warehouses and more are bought and sold as investment properties – they’re big business for brokers and property owners. Even with the ebb and flow of the real estate market, businesses in the commercial sector have the potential for high profits.
But commercial real estate business owners can find themselves on the hook for losses if risks aren’t adequately covered. Risks such as loss of rents, regulatory changes, and reputational risks can thwart their chances of success. But losses can be mitigated with the formation of a captive insurance company as part of a robust risk management strategy. The animated video below explains.
Have questions? Call Capstone at 713.800.0550, or submit your information via the form. One of our experts will be in touch. We’ll discuss how we can help you or your client form a captive insurance company to insure the risks of your commercial real estate business.
Fund Losses, Fight Commercial Real Estate Risks
In the conventional insurance market, many real estate coverages are available. However, the scope of coverages can be extremely limited and coverage exclusions are numerous. Exclusions in commercials policies (or higher deductibles) include windstorm and hail damage, flooding, loss of rents (e.g., during periods of reconstruction or repair due to weather events), geophysical issues, offsite events (e.g., a chemical spill or pipeline leak), business interruption because of offsite electrical interruptions, etc. “Specialty” GAP coverages may be available, but they are usually sufficient expensive as to be uneconomical. Broad form “all risks” coverages are difficult to come by.
With the formation of a captive insurance company, developers and investment builders owners can write tailored coverages, specific to the risks of their commercial properties.
Sample coverages include:
- Loss of Rents
- Windstorm
- Rising Water
- Business Interruption Due to Offsite Events
- Regulatory Changes
- Pollution
- Property Damage
- Excess Commercial General Liability
- Mold/Chemical Remediation
- Legal Defense
- Employment Practices Liability (management company)
The benefits of forming a captive insurance company can be fully realized when business owners partner with an expert captive management team, like Capstone Associated Services. Keep reading to learn more.
So here’s how it works:
Commercial real estate companies pay premiums to the captive insurance company, just as they would to a commercial insurance company. Funds accumulate inside the captive which then can be used to fund losses. Captive insurers operating under IRC 831(b) offer a 0% Federal income tax paid on the captive’s underwriting profits, all with a view to more quickly building up capital inside the captive to be available to fund later losses.
Moreover, if there is undistributed earned surplus, i.e., where there are no claims made, at some point funds can be distributed as a dividend or used to fund a secured loan back to the operating company. Premium costs are lower, because in the commercial markets, “special” or customized coverages, especially those with few policy exclusions, tend to be much more expensive. Typically coverages written through the captive are not readily available in the conventional markets. Business owners gain better control over their risk management efforts, more comprehensive coverages, and a more advantageous planning solution.
Bottom line: Captive insurance for commercial real estate businesses is a powerful supplement to conventional insurance alone. Savvy business owners who form their own captive insurance company can count on a new level of risk management, as they combat risk in such a competitive industry.
Comprehensive Captive Planning For Commercial Real Estate Businesses
Capstone is the most integrated and largest outsourced provider of captive insurance services for the U.S. middle market. Capstone offers platinum level captive planning and administers property & casualty captive insurance companies that provide alternative risk financing services throughout the U.S.
Now in its 26th year, Capstone provides turnkey services to businesses in many industries, including commercial real estate.
The company has an award-winning track record for standing with clients in the design, implementation, ongoing management, and defense of their property & casualty captive insurance programs. Capstone has successfully administered and successfully managed over 200 captives since 1998.
Capstone's staff of professionals includes Chartered Property & Casualty Underwriters, insurance experts, risk managers, claims personnel, accountants and administrators. Capstone’s expertise is bolstered by long-standing relationships with outside CPAs, risk managers, property & casualty professionals, and actuaries.
Together, this team offers middle market companies the most comprehensive risk planning solution available.
Learn More About Captive Insurance
- Get the basics. "Captive Insurance Explained in Plain English" provides a simple overview of how captives work without the industry jargon.
- Want a little more depth on captives? Check out our Captive Insurance page for more information.
- See captives in action with "7 Ways Businesses are Using Captive Insurance."
