The Independent Tire Dealers Group (ITDG) L.L.C. has completed the formation of a captive insurance company and is rolling it out first for members and then eventually non-members of its group.
Hailed as a ``monumental accomplishment'' by ITDG President/CEO Mike Cox, the new firm received its final licensing April 7 from the Arizona Department of Insurance as a C-corporation. Called the Independent Innovative Captive Insurance Co. Inc., initially it will handle workers' compensation claims and, ITDG said, eventually hopes to add general liability, garage keeper and possibly medical insurance.
Created by ITDG members, the captive is a separate company from ITDG with its own board of directors, said Mr. Cox, who serves as the captive's secretary. The company currently has 40 shareholders owning class-A stock, and Mr. Cox said he anticipates that number will grow as more dealers become interested in joining the captive to reduce their workers' comp rates.
A captive is an alternative to self-insurance in that it primarily insures the risks of its owner and is actively managed by the owner and/or the insured members, who usually own the assets. An insurance firm typically accepts risks and financial responsibility for the captive.
``We'll be soliciting potential captive participants there,'' Mr. Cox said. ``Not everybody can participate because you have to have a certain experience modification rate and your premiums have to be such and you have to have a good workers' comp history.''
``We're extremely excited about it, and it's going to be a value-added program to the Independent Tire Dealers Group,'' said Richard Howard, chairman of the captive insurance firm and an ITDG board member.
Mr. Cox said ITDG is committed to making the captive a profitable venture. To do so, it has hired Sue Ferguson-the wife of an ITDG member-as a full-time risk manager and formed a risk committee, to which Ms. Ferguson will report. ITDG has kept the captive's expense load low and wants to bring in only participants with healthy insurance records.
``Anybody who runs a good, clean solid business can join this captive,'' Mr. Howard told Tire Business, adding that any potential shareholders will be inspected and evaluated thoroughly for risk. The captive will be rolled out to interested ITDG members at its upcoming trade show in Huntington Beach, Calif., but not all will be able to join at once because of penalties they might incur for early termination of current policies, Mr. Howard added.
``Insurance is such a big expense to all of us as independents,'' he said. ``It's one of my biggest concerns.''
The captive will bill its shareholders at a competitive rate, he added, and depending on the number of claims, hopes to pay out dividends at year-end. He said another advantage to forming a captive firm for tire dealers is that shareholders have more control in getting feedback on their claims.
Mr. Howard said he couldn't quantify how much captive members could save on premiums because that will be based on what the captive's total collective losses are at year-end. But he added that he wants to build the captive into a company with $6 million in premiums.
ITDG began creating the captive company last May, and Mr. Cox admitted it took a little longer to do than expected. The buying group hired Polaris Enterprise Group out of San Francisco to help recruit ancillary companies needed to put together the captive, as well as Hartford, Conn.-based Discover RE as its re-insurance firm. The other ancillary companies include Gates McDonald, which serves as the third-party administrator, Cedar Hill Assurance of Scottsdale, Ariz., and Captive Insurance Managers of Phoenix.
Two of those ancillary firms will handle the captive's claims and claim adjustments, Mr. Cox said, adding that the amount of information he had to gather for actuaries and lawyers alone took much time. That data included the last five years of currently valued workers' comp loss runs of ITDG members as well as the last five years of workers' comp premiums paid.
Other ITDG members who serve as officers for the captive company are: Vice President Chris Wyborny, also vice president of Ramona Tire Inc. in Hemet, Calif.; Treasurer Bob Slagle, owner of S&S Tire in Phoenix; and Interim Director Cameron Crebbs, president of Polaris.
Mr. Howard, who is owner of Bruce's Tire Inc. in Fremont, Calif., said he previously had tried to form an off-shore captive insurance firm based in Guernsey Island (near the United Kingdom) with other tire dealers during the 1990s. The effort eventually failed after the re-insurance firm they hired went bankrupt, he said, and the captive's total premiums fell below $1 million.
``Typically, they'll tell you that you need in excess of $3 million premium just for a re-insurer to be interested in you,'' Mr. Howard said. He added that his previous venture also had never hired a facilitating firm like Polaris to help hire ancillary companies.