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Protected Cell Captives for Workers Comp

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Protected Cell Captives

In my last blog post, I covered Protected Cell Captives under the Rent-A- Captive heading. I used to think this type of arrangement was complicated and expensive to administrate. I have found Protected Cell Captives to be neither complicated nor expensive when compared with paying regular Workers Comp premiums. Protected cell arrangements do not need to be a rent-a-captive only. They can be structured within any type of captive arrangement.

Picture Of Files Protected Cell Captives Document
Wikimedia Commons – Tony Webster

The two main benefits are that if any one cell files for bankruptcy, the other cells are not affected and can conduct business as usual. I had found the term “bankruptcy remote” to describe this type of capital safety. The other benefit is that if the capitalization of the cell is less expensive than without the cell, a profit-type motive exists.

 
I had actually been called in as an expert witness in a very complicated Workers Comp case where bad faith was an issue. The protected cell that covered the claim filed for bankruptcy and the attorney could not pursue any of the other cells due to the “bankruptcy remote” provision. This did not bode well for a very large Workers Comp file and the bad faith suit that was being pursued at the time.
 
Picture of Protected Cell Captives Organized Shelves
StockUnlimited

In 2007, I became heavily involved with captives, but then did not pursue due to the fact that I had thought the IRS would strike down most captive arrangements for Workers Comp or any other type of coverage. The tax avoidance was something I thought would not be allowed. However, the IRS strikingly took the stance of the complete allowance of captives with a few caveats.

 
I will cover the IRS’s most recent view of captives from the Enforcement Division. It is very interesting and does agree with the preservation of the tax benefits of captives.
 
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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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