KYD CONNICK WHO IS HE

You will know him soon he has a blog coming out @ http://kydconnick.blogspot.com/

INSURANCE COSTS FOR YOUR MEDICAL PRACTICE GOING THROUGH THE ROOF SELF UNDERWRITE

Self Insurance for Physicians and Private Hospitals

By Melvin J. Howard

Captives

A Captive is an insurance company established (generally in a tax neutral jurisdiction) which is owned by one or more non-insurance organizations to underwrite the risks of those particular owners. A variant is an 'Agency Captive’, which is owned by independent agents who wish to participate in the underwriting results of the business they produce. A Captive can also be owned by a number of unrelated companies from within a particular industry , by a number of unrelated companies from different industries or by a trade or industry association (an Association Captive) i.e. Physician group to insure the risks of the group owners or association.
Rent-a-Captives


For this proposes you can use a Rent-a-Captive program. A Rent-a-Captive is an independently owned and operated insurance company that allows unrelated companies to use or "rent" its capital, surplus and corporate structure to enable those companies to participate in the underwriting results of the risks they insure into the Rent-a-Captive. Companies interested in utilizing a Rent-a-Captive include associations and independent agents. The Rent-a-Captive performs on a "turn-key" basis the same functions and achieves the same goals as a Captive insurance company, but the association or group ("lessee") does not own, control or capitalize the Rent-a-Captive.

The costs of capitalizing and operating a Captive insurance company (usually on an after tax basis) are typically higher than utilizing a Rent-a-Captive. Operating a Captive also requires more management time than participating in a Rent-a-Captive. Furthermore, programs in a Rent-a-Captive are much easier to exit than a Captive which requires formal liquidation or sale. In summary, participation in a Rent-a-Captive eliminates the substantial organizational requirements and the need to commit funds for capitalization.





Advantages


The advantages of using this program include the following:
i) the ability to participate in underwriting profits as a individual basis;


ii) the ability to purchase insurance related services on an unbundled basis;


iii) the ability to determine levels of risk assumption;
iv) the ability to reduce and control costs;


v) the ability to carry less administrative and legal costs than those passed on by the insurer;

vi) the ability to earn investment income on premiums paid; and
vii) To accumulate investment income on premiums received.
viii) The elimination of the reimbursement agreement between the bank and obligor (SPE).
ix) Tailor made policies for a particular coverage that is unavailable or in this case unacceptable priced in the commercial market
x) no feasibility study
xi) proof of coverage
xii) flexible operating covenants
xiii) easily can be incorporated into the preliminary official statement

Features of Rent-a-Captive


The primary cost reduction factor is the element of risk retention held by the group. Under a Rent-a-Captive structure, the association or group retains a portion of its own risk at a level mutually acceptable to both the association or group and the Rent-a-Captive. In the event of a loss or in this case default on the principal and interest payments due the note holders the association or group is responsible to pay claims up to that retention level. However, by "self-insuring" to this retained limit, the association or the group reduces its premium costs because the cost of obtaining coverage for limits of insurance above the retention is less than purchasing insurance that attaches at the first dollar of loss., i.e. without any retention. These reductions in costs take place over time and are generally not applicable to the association or group.
Risk Management
Risk management, or loss control, plays a major role in the Rent-a-Captive structure and provides a means for further cost reduction for the association or group. Good loss experience is reflected in the rates to participate in the Rent-a-Captive. By employing effective loss control measures at the association or group, you can reduce your insurance exposure thereby potentially increasing underwriting profits available to the association or group and, at the same time, keeping premium costs down. You can also benefit from risk management by improving loss control. A reduction in loss costs should result in increased funds available for investment to offset future claims.
Participation in Rent-a-Captives
There is no specific formula for determining who should participate in a rent-a-Captive program. However, the program is generally suitable to organizations having total annual premium costs in excess of $1,500,000, for agents who can direct a book of business in excess of $5,000,000 and for groups or associations having total annual premium costs in excess of $1,500,000.
Under a typical rent-a-Captive program, an insured or agent obtains primary insurance coverage from a direct insurer. The primary insurer will then cede, or transfer, to the rent-a-Captive a portion of the primary insurance coverage in an amount equal to the limit that the insured wishes to retain itself. The net premium received by the rent-a- Captive from the primary insurer for the risk transferred is tracked in a "separate account" maintained by the rent-a-Captive on behalf of the insured. Each entity in the rent-a Captive Program purchases an account certificate (the "Certificate") for a specified sum ("Purchase Price").

Distributions to your association or group
In the event a the association or group cell produces a profit (i.e. premiums plus investment income exceed losses and program expenses), distributions to the association or group are made pursuant to an Accountholder Agreement entered into between the association or group and the rent-a-­Captive. The association is entitled to a portion of the undistributed underwriting profit and investment income earned, to be paid at specific intervals as set forth in the Accountholder Agreement. Timing for distribution payments is typically agreed in advance between the association or the group and the rent-a-Captive, and the first such payment is not expected to be made prior to 24 months following the effective date of the Agreement. If you would like to know more about the Rent a Captive program feel free to contact the writer.

LOOKING AT ALTERNATIVE WAYS TO FINANCE YOUR HEALTH CARE PROJECTS

HEALTH CARE PARTNERING WITH A NON BANK LENDER

By MELVIN J. HOWARD

The advent of non-bank lending institutions, whose only business is making, Loans. Have opened new doors for Physicians and Hospitals who need capital to start, build and grow their businesses. Medical facilities in businesses that do not typically qualify for conventional financing have discovered that non-bank lenders offer a viable alternative. Medical facilities such as specialty clinics physicians practices or small to regional hospital centers that are difficult for banks to finance because they are single use properties, or the medical facility fall’s outside the bank's risk profile. Although it might seem that banks and non-banks would be rivals competing for Small Business customers. Increasingly conventional banks and non-banks are collaborating to benefit both the customer and themselves.

Partnering with a non-bank lender benefits the conventional lender in several ways. Perhaps most significant is that such a partnership can provide a bank an opportunity to say "yes" to a prospective borrower. Banks receive numerous loan inquiries through their broad networks of branches and business development officers. Many requests are turned down because they do not fit the bank's desired risk profile. However, these same prospects are likely to have deposits and/or other banking needs, both of which are desirable to a bank for its operations and overall profitability. Loans referred to a non-bank lender provide an opportunity for a bank to outsource loans it cannot approve while maintaining the profitable, non-credit portion of the relationship.

Non-banks can also serve as an outplacement resource for a bank's existing credit situations that no longer meet its desired risk profile. For example, as a result of a merger or acquisition, a bank may find that it now has a number of loans that do not fit its risk profile. A lender may also wish to outplace a loan that is performing, but is no longer desirable due to changes in loan-to-value, covenant violations or changes in operations. A non-bank lender may be able to refinance the loan, usually over a longer term and without covenants, thus improving the customer's cash flow and stability and removing the risk from the bank's balance sheet without impacting the remainder of the bank relationship.

A partnership between banks and non-banks ultimately benefits the customer. First and foremost, a non-bank often provides access to financing that is not available from a conventional lender. Furthermore, the customer's borrowing needs are met in a permanent way. Term loans do not have to be balloon payments, eliminating the need for a borrower to refinance the loan in 5 or 10 years. Therefore, the costs associated with a long-term loan (i.e. appraisals, environmental reports, and legal costs) are incurred just once.

When working with a non-bank lender, a customer can be assured that the lender is focused entirely on the loan transaction. Because a non-bank lender is interested only in the loan transaction, there is no need for a customer to unwind its banking relationship or move its deposit accounts. Many non-bank lenders have earned "preferred" lender status enabling them to provide quick turnaround on loan decisions with a high level of expertise in the loan process, thus providing a customer with painless fulfillment of it financing need.

Key to understanding how the bank and the non-bank work together, is an understanding of how they are different. Aside from the organizational or structural differences, how does a non-bank lender differ from a conventional bank? First, non-banks' only business is that of making loans. They do not take deposits or sell other services such as payroll, cash management, etc.

Contrary to popular opinion, non-bank lenders are not necessarily more aggressive in their evaluation of a loan request. However, because their loans are not funded by deposits and because they are not subject to the same set of regulations as banks, the non-banks can and will consider industries and situations conventional lenders will typically shy away from. Examples of industries that non-bank lenders will consider include gas stations/convenience stores, auto body shops, car washes, restaurants and the hospitality industry (hotels/motels/B&Bs). In addition, non-bank lenders are willing to consider situations, such as start-up businesses or businesses/individuals with problematic credit histories, which are generally perceived as being higher-risk.

Non-bank lenders can also be flexible in other ways. For example, non-bank lenders are typically long-term lenders, with a desired loan term of seven to 25 years, depending on the use of loan proceeds. In addition, many non-bank lenders lend nationally and are not restricted to a particular region or "footprint." Lastly, non-bank lenders often take a more holistic approach to a loan request, particularly with regards to collateral. As business assets may be insufficient to adequately secure a loan, a non-bank lender will often look to the availability of personal assets as part of the entire collateral pool.

As we often hear, small and regional clinics and hospitals are the backbone of rural communities. They are often also the backbone of a bank's branch deposit base and overall profitability. By partnering with a non-bank lender, a bank can benefit both itself and its health care customers.