Webinar Replay #104: How to Control Insurance Costs: Captive Insurance 101

1
00:00:04.100 –> 00:00:23.750
Lydia Wommack: Hi, everyone. Good morning and welcome. Thank you so much for joining us today. It’s dreary in Texas, but I hope it’s lovely out wherever you are. We have Mike Knotts with Higginbotham in today, and he’s just back in from Cayman, so, you know, we’re glad to have him here ahead of the hurricane, and of course, Mr. Mark Ray in the Dallas area.

2
00:00:23.750 –> 00:00:48.740
Lydia Wommack: We have a lot to cover today, and it’s a really timely and exciting topic, because we all know the cost of insurance is just wild out there, and everyone we talk to is asking, what can we do? How can we control these costs? And, you know, where can we move the needle even just a little bit? So, we’re very excited to hear about this. Before we jump in, I do want to first invite everyone

3
00:00:48.740 –> 00:01:04.650
Lydia Wommack: to, jump into the chat, let us know where you are coming from, if you are in a captive already, if you’re not, then, you know, who is your insurance provider, and are you liking it, and tell us what you have going on over there. We’d love to see you in chat.

4
00:01:04.650 –> 00:01:17.219
Lydia Wommack: Next coming up, before we again jump in, I do just want to also remind everybody that we have several other events coming up in the next few months. We have a webinar tomorrow with Brandon Weissman.

5
00:01:17.220 –> 00:01:42.219
Lydia Wommack: on FMCSA’s proposed pilot changes to hours of service. So that’s going to be a good one to jump in on, and you know, Brandon is full of good information, very good with the regulations, so tune in for that. A couple of other webinars, and boot camps. You know, we do boot camp twice a month. We still have a little bit of room left in the November boot camp, I think maybe 2 or 3 more spots, and then a few spots left in

6
00:01:42.220 –> 00:01:44.940
Lydia Wommack: December, so come join us in Dallas live.

7
00:01:45.010 –> 00:01:57.430
Lydia Wommack: Mark Rhea and our own Steve Kessler host a two-day program on risk mitigation, safety best practices, all of the things you can do proactively and, do to prevent

8
00:01:57.430 –> 00:02:14.449
Lydia Wommack: you know, accidents, injuries, and claims, which is just so key, again, to this topic. And then at the end of November, we’re also hosting a webinar, with Atri Rebecca Brewster is coming to talk about the Top Issues report, which was just released over the weekend at MC&E.

9
00:02:14.450 –> 00:02:27.589
Lydia Wommack: So, that one’s really timely, again, for this conversation, because the top three issues I think we all expected, number one was economy, number two, nuclear verdicts or lawsuit abuse, and number three, the rising cost of insurance.

10
00:02:27.590 –> 00:02:36.599
Lydia Wommack: So, very timely. Mike, we are so delighted to have you today, and I think with that, we’ll just pass it right along, because we want to hear the good stuff.

11
00:02:36.800 –> 00:02:49.590
Mike Knotts: All right, well, welcome everybody, and I hope to make contact eventually at some point in time. If anyone has any questions, please feel free to jump in anytime.

12
00:02:49.590 –> 00:02:59.219
Mike Knotts: Hopefully we’ll have some time at the end. So just briefly, I’m in the great state of Louisiana, today, as Lydia said, and,

13
00:02:59.220 –> 00:03:11.650
Mike Knotts: And if anyone knows anything about the great state of Louisiana, the, only thing that we’re top, or top, or the top leader in is our cost of insurance, in a negative way. So…

14
00:03:11.650 –> 00:03:24.750
Mike Knotts: So, I started in the trucking business 42 years ago, selling standard market trucking insurance, the Carolina casualties, the canals, the, the NICOs,

15
00:03:24.750 –> 00:03:31.380
Mike Knotts: the, trucking, marketplace. And, in doing that, I kept passing along

16
00:03:31.380 –> 00:03:39.459
Mike Knotts: the cost to my, insurers, and I kept telling them to hire better drivers, do safety plans.

17
00:03:39.720 –> 00:03:57.119
Mike Knotts: Use, you know, all the safety tools we have, pay attention to claims, and by doing that, we’re going to lower their insurance costs. Well, that never happened. The cost of insurance just kept going up and up and up. And so, finally.

18
00:03:57.120 –> 00:04:07.280
Mike Knotts: I’m gonna say the mid-90s, my clients came to me and said, Mike, if you don’t find a solution, we’re out of business. And if we’re out of business.

19
00:04:07.280 –> 00:04:19.099
Mike Knotts: you’re out of business. And, of course, they didn’t have to tell me that, that was very obvious, and so, so by doing that, I started exploring, and my first option was to go look for new insurance companies.

20
00:04:19.250 –> 00:04:31.710
Mike Knotts: And every… where I turned, the insurance companies told me they weren’t coming to the great state of Louisiana. And they loved our food, but they didn’t love our trucking or our claims attorneys, our plaintiff attorneys.

21
00:04:32.190 –> 00:04:47.740
Mike Knotts: And so, with that, I had to find another alternative. So, not trying to impress anyone with my knowledge today of the insurance business, but I am saying I’m a survivalist, and so we turned to group captives.

22
00:04:48.120 –> 00:05:05.440
Mike Knotts: And in Group Captives, I’m gonna tell you briefly today, very quickly about Group Captives, and, again, open for questions at the end, but, basically, the group captives are looking for the top 20% of the marketplace.

23
00:05:05.440 –> 00:05:16.539
Mike Knotts: So, everyone’s not gonna be a group captive candidate, and we’re happy to help, our music is happy to help, vet you and tell you if you’re a group captive candidate.

24
00:05:16.560 –> 00:05:34.790
Mike Knotts: Actually, your losses dictate most of that, and so we can tell you from your premium losses pretty quick if you’re an option. And then, group captives require a minimum of $250,000 in premium, auto liability, general liability, and workers’ comp.

25
00:05:34.880 –> 00:05:49.709
Mike Knotts: And so, those three lines, primarily your auto physical damage, can also go in there to make up to $250. And so, if you pay that, but if you’re much of a trucking company, you pay that pretty quick. So, regardless of what state you’re in.

26
00:05:49.820 –> 00:05:54.620
Mike Knotts: So, I would say, from a premium standpoint, most trucking clients are

27
00:05:54.740 –> 00:06:12.710
Mike Knotts: a prospect. It strictly then be your losses, and then we get into your safety. Your cab score for trucking clients plays in really, you know, again, the captives, because you’re going in business. And Lydia, if you scroll across a page or two here now?

28
00:06:13.160 –> 00:06:14.209
Mike Knotts: Let’s go ahead.

29
00:06:14.900 –> 00:06:18.909
Mike Knotts: Alright, so this is the traditional way… one more, let’s go back.

30
00:06:19.820 –> 00:06:21.529
Lydia Wommack: Oops, go back right here, okay.

31
00:06:21.530 –> 00:06:38.149
Mike Knotts: This is the traditional way we buy insurance. You buy it from an insurance carrier, you put it into their… into the premium, into their policy, they take out their operating costs and any losses, and then the insurance company, gets to keep the profits, if there is any profits left at the end.

32
00:06:38.150 –> 00:06:44.869
Mike Knotts: Okay? And so, we’re going to talk about the next option, which is group captives on the next page.

33
00:06:45.070 –> 00:06:51.339
Mike Knotts: And basically, you can think of it like a co-op.

34
00:06:52.220 –> 00:06:53.690
Mike Knotts: Lydia, one page?

35
00:06:57.360 –> 00:07:11.869
Mike Knotts: Yeah, think of it like a co-op, but here’s the difference, and here’s the definition. It’s an insurance company that is owned and controlled by its members for the benefit of its members. Now, if you’ll notice in that definition, nowhere does it say insurance company.

36
00:07:11.930 –> 00:07:25.930
Mike Knotts: Okay? So, Company A, company B, Company C, and company D all own a share. That share’s typically $36,000, and everyone owns a share of the stock, and everybody has one vote.

37
00:07:25.930 –> 00:07:40.870
Mike Knotts: Regardless of your trucking company size, or premium, okay? So, it is… and that’s really key, and for you guys that may be in a captive, you want to make sure your agent reminds, the vendors

38
00:07:40.920 –> 00:07:57.949
Mike Knotts: be it the captive manager, or the claims person, or the loss control team, that, you know, of this definition. So I keep this definition very close. I can recite it, and the vendors don’t always like to hear it, but the members, in a member-owned captive.

39
00:07:57.950 –> 00:08:09.280
Mike Knotts: Okay? Now you have some captives that are sponsored by insurance companies, and I won’t mention any of those today, but they’re sponsored by an insurance company. Well, the insurance company owns that captive.

40
00:08:09.360 –> 00:08:27.339
Mike Knotts: Or you have some that are sponsored by an agency, and I won’t mention those agencies. Well, the insurance agency owns this captive. So, I’m a believer in member-owned captives. So, that means you, the members, the trucking companies, actually own the captives. You have two board meetings a year, you get to vote.

41
00:08:27.340 –> 00:08:39.789
Mike Knotts: The insurance companies can’t vote, the vendors can’t vote, the agents can’t vote. So, you, the members, get to vote. And so, you also own the equity, and we’ll talk about that in just a second. Next page, Lydia, please.

42
00:08:42.059 –> 00:08:49.920
Mike Knotts: So, you know, it’s going to provide you ownership, as we just talked about, more control, improved claims handling, risk management.

43
00:08:49.920 –> 00:09:02.410
Mike Knotts: We’re gonna provide you some premium development transparency, we’ll show you that in just a second, and then return at the end, some underwriting profits and some investment income, and I’ll show you examples of those as well.

44
00:09:02.480 –> 00:09:03.930
Mike Knotts: Next, please, please.

45
00:09:05.480 –> 00:09:06.440
Mike Knotts: So…

46
00:09:06.720 –> 00:09:20.129
Mike Knotts: I’m… I’m a BNC student from the great state of Louisiana again, so our education system is also down there with our insurance. But, I’m very much a picture guy in that age group.

47
00:09:20.130 –> 00:09:28.140
Mike Knotts: And so I had to do something visually for me. So, in this particular case, the building is the captive.

48
00:09:28.410 –> 00:09:45.209
Mike Knotts: So we’re all A, B, C, D, all companies are in the building, and the actual condo units themselves are the different members in the building. So the building takes the first, in this example, the first $300,000, not each individual member.

49
00:09:45.210 –> 00:09:56.800
Mike Knotts: and then we buy reinsurance from an A-rated company above that to up to $2 million, in this particular example. And this is most captives today. You’re going to receive a

50
00:09:57.370 –> 00:10:14.429
Mike Knotts: a policy from an A-rated carrier, A-plus rated carrier, and you’re going to receive reinsurance for them. So, if you get a certificate of insurance, let’s say this captive was named, Tripp, okay? Well, you’re not going to see Tripp anywhere on your policy and or your

51
00:10:14.430 –> 00:10:33.309
Mike Knotts: And or your certificate. You’re gonna see the name of the insurance company. I can see, and I’ll just use one example, AIG. You know, you’re gonna… Zurich, you’re gonna see the name of that insurance company on your certificate and on your policy. So unless you tell someone that you’re in a captive, they’ll never know you’re in a captive.

52
00:10:34.320 –> 00:10:35.730
Mike Knotts: Next page, buddy.

53
00:10:37.350 –> 00:10:41.539
Mike Knotts: Alright, so here’s a real simple example of how the premium flows.

54
00:10:41.860 –> 00:10:59.050
Mike Knotts: So, I like to say on the fixed cost, that’s typically 45%, maybe 50 on the high side, and that’s gonna take care of your reinsurance, your policy issuance, your claims administration, your loss control, and any other expenses to run the captive.

55
00:10:59.550 –> 00:11:14.119
Mike Knotts: Then, the other 55% to 50% is going to be in two loss funds. And different captives refer to this, as a frequency fund, or an A fund, 0 to 100.

56
00:11:14.120 –> 00:11:27.750
Mike Knotts: And that number, just was in a captive meeting last week because of the cost of trucks now. That number can fluctuate up to $125 or $150. And then, the second bucket is severity fund.

57
00:11:27.750 –> 00:11:46.079
Mike Knotts: and… or your B fund, and that, in this example, is $100 to $300. So, this is the cost of the claim. So, a claim less than $100,000 comes out of your A fund, your frequency fund. Once it goes to $101,000, it comes out of your B fund.

58
00:11:46.080 –> 00:11:56.850
Mike Knotts: And each person, and I’ll show you this example in a minute, will be assigned the premium for those particular losses to those buckets.

59
00:11:56.850 –> 00:12:08.249
Mike Knotts: And, and so we’ll go from there. If you don’t spend those dollars, and this is… I could stop right here for a lot of people, if you don’t spend those dollars, those are your member dividends, those come back to you.

60
00:12:08.350 –> 00:12:11.289
Mike Knotts: And so, we’ll talk about that in just a little bit as well.

61
00:12:11.550 –> 00:12:12.190
Mike Knotts: Okay?

62
00:12:12.190 –> 00:12:15.010
Mark Rhea: Mike, when you say claim.

63
00:12:15.010 –> 00:12:15.370
Mike Knotts: chief.

64
00:12:15.370 –> 00:12:22.560
Mark Rhea: Would that… is that the estimate? Is that… is that the reserve that you set up for a… a… a claim?

65
00:12:22.560 –> 00:12:46.600
Mike Knotts: It’s paid and reserved, so let’s say… let’s say we’ve got a truck accident, and we all know that a Peterbilt doesn’t cost $150,000 anymore, Peterbilt’s $200,000 or better. And so, new one. And so, let’s say we wrecked the Peterbilt. Well, we’re gonna get the first $100 out of the A fund, and then the rest of the claim is gonna go into the B fund. And I’ll have some examples of that in just a second.

66
00:12:46.600 –> 00:12:48.890
Mike Knotts: But it’s on each individual claim.

67
00:12:49.410 –> 00:12:50.180
Mark Rhea: Oh, yay.

68
00:12:50.590 –> 00:12:51.500
Mike Knotts: Yes, sir.

69
00:12:53.140 –> 00:12:53.800
Mike Knotts: Okay.

70
00:12:53.900 –> 00:12:54.600
Lydia Wommack: Okay.

71
00:12:57.980 –> 00:13:09.540
Mike Knotts: Alright, so, and again, this is… I’m a pitcher guy, so we’ll make sure we got this. So, we’re trying to predict what you need in your A fund, okay?

72
00:13:09.540 –> 00:13:24.959
Mike Knotts: And that’s what we’re trying to predict. That’s what actuarially, not Mike, not the insurance company, actuarially, we’re trying to predict that. And so, if Mark and I went out and shot basketball today, and we shot from half court, not very predictable how many we’re gonna make.

73
00:13:25.180 –> 00:13:42.010
Mike Knotts: Okay? If we got to the 3-point line, Mark may make a few. I’m not a very good basketball player, so probably not gonna make many, so it’s not very predictable. But if we get to the free throw line, Mark and I could shoot underhanded if we wanted to, and if we shoot enough.

74
00:13:42.010 –> 00:13:56.959
Mike Knotts: Okay? Enough there. We’re gonna eventually say Mark’s gonna make 4, I’m gonna make 3, but we’ve got the predictable layer. So in insurance, casualty insurance, the predictable layer is the A fund. That’s $100,000 and below.

75
00:13:57.110 –> 00:14:07.499
Mike Knotts: So, on the next page, I’m going to show you, by getting your historical losses, your historical premiums, and your historical exposures. One more, Lydia, please.

76
00:14:08.660 –> 00:14:15.940
Mike Knotts: My son, they’re right here. I’m gonna show you by this. This is what an actuarial loss pick looks like.

77
00:14:16.070 –> 00:14:36.320
Mike Knotts: I’m not expecting you to understand the numbers, follow the numbers. The numbers are really irrelevant. It’s the… it’s the… it’s the formula here that… that, that I want you to pay attention to, and I’ll lead you through. So, in column… let’s see, the top box up there, that’s CAL on the far… on the far left, that’s commercial auto liability.

78
00:14:36.320 –> 00:14:39.260
Mike Knotts: So, in this particular client’s example.

79
00:14:39.260 –> 00:14:52.819
Mike Knotts: Commercial auto liability, you’ll see commercial auto physical damage and work comp. Each one of them have their own… their own boxes and their own calculation. So, in column 4, I’ve got the client’s prior premiums.

80
00:14:52.820 –> 00:15:03.820
Mike Knotts: So, for all you guys, out there that say, well, I’m not giving my agent, or my prospective agent my premiums, because he’s just gonna come in below that.

81
00:15:03.820 –> 00:15:21.520
Mike Knotts: Well, take it from an agent himself. I wish it were that easy, and I wish I could talk somebody into doing that. That’s not the way it works, okay? But, in the scenario, I’m going to show you why this is very, very important for you. So, I’ve got your prior premiums.

82
00:15:21.520 –> 00:15:40.390
Mike Knotts: Starting with your, newest, oldest year, coming down… I’m sorry, your newest year in this example, this is an old example, but in your newest year, coming into your oldest year, okay? Column 5 is industry expected loss ratios. That’s really for the actuary. It won’t have any bearing here.

83
00:15:40.930 –> 00:15:51.919
Mike Knotts: Column 6, A and 6B, are the total losses, okay? So, if you’ll notice, I’m taking out all losses in excess of 100,

84
00:15:51.920 –> 00:16:01.039
Mike Knotts: Okay? Because I’m not… again, I’m trying to predict losses in that A fund bucket, which is 100 and below. You follow me there, Mark?

85
00:16:02.660 –> 00:16:03.830
Mike Knotts: Okay?

86
00:16:03.830 –> 00:16:04.370
Mark Rhea: Sure.

87
00:16:04.370 –> 00:16:10.020
Mike Knotts: What I’m focused on is the losses 100 and below. And so, column,

88
00:16:10.120 –> 00:16:21.629
Mike Knotts: 8, okay, is called the loss development method, okay? So that’s where I’ve taken your loss of $8,000 in the top there, and I’ve gone across.

89
00:16:21.630 –> 00:16:30.710
Mike Knotts: and using actuarial loss developments, because we know as a claim gets older, it’s going to cost more. That’s that reserving that you referred to.

90
00:16:30.710 –> 00:16:41.639
Mike Knotts: unless it’s a physical damage or, you know, a property loss, it’s gonna cost more. And so, they developed that $8,000 out to $14,000. Well…

91
00:16:41.640 –> 00:16:51.049
Mike Knotts: Let’s say you got a lot of zeros, like you do in year 2020, 2021, or 19-20, or 18, 19, you’ve got zeros in there.

92
00:16:51.050 –> 00:16:56.970
Mike Knotts: Well… zeros are Mark and I not shooting enough shots. Well, if Mark and I don’t shoot enough shots.

93
00:16:56.970 –> 00:17:16.450
Mike Knotts: how are we going to predict what our losses are going to be? So, what they then take, this is where your premiums are important, they take your premiums for those years, okay, times the expected loss ratio and the expected utilization loss ratio, and they come up with a number. So, if you’ll notice, in column 10,

94
00:17:16.450 –> 00:17:20.260
Mike Knotts: Okay? It is either a blend.

95
00:17:20.260 –> 00:17:30.119
Mike Knotts: Okay, the selected ultimate is either a blend, or what the actuary believed was more, actuarily predicted. And so…

96
00:17:30.120 –> 00:17:40.799
Mike Knotts: But if you notice, in those bottom 3 years, we had to use the premium and the BF method, which is based off your premiums, because there wasn’t enough shots taken.

97
00:17:40.820 –> 00:17:56.850
Mike Knotts: Okay? Well, we do that for every… every section. If you’ll notice, column 12 is your exposures. This particular client’s got 26 trucks in his most current year, 25 in the year past, and he… he had 117 total for the 5-year total.

98
00:17:56.890 –> 00:18:13.529
Mike Knotts: Loss cost, is we take your number of trucks each year divided by your… divided by your, selected ultimate, and so that’s how we come up with a loss cost, which is the amount per truck that we need in your A fund.

99
00:18:13.650 –> 00:18:28.869
Mike Knotts: Well, again, we all know that trend is a real thing, okay? That’s the cost of claims getting older, and so we have to add some trend, and we come up in column 15 with your trended loss costs.

100
00:18:29.370 –> 00:18:42.100
Mike Knotts: Okay? And that $2,000 is how much $2,062 for that year is what they’re suggesting that we need. But we take a 5-year average down at the bottom, the 902, Lydia.

101
00:18:42.100 –> 00:18:55.699
Mike Knotts: Right down there, if you’ll take your mouse and come down, straight down, Lydia. Right there, the 92. Well, this is the end of the math for this, this whole presentation, and I apologize if I bored you, but I wanted y’all to understand

102
00:18:55.700 –> 00:19:07.380
Mike Knotts: Each year, you’re gonna take out the oldest year, we’re gonna put in the newest year, and each year, this is how your rates are gonna be established. Now, I’m gonna use Mark, Lydia, and I

103
00:19:07.450 –> 00:19:20.749
Mike Knotts: is an example, if we’re all in this captive together, and this is Mark’s numbers, this is not gonna affect Lydia or I. It’s only gonna affect Mark. So, for… I’m gonna say this here, and you’ll hear me say it again.

104
00:19:20.750 –> 00:19:25.500
Mike Knotts: I think this is the fairest way to buy your insurance, because it depends on me.

105
00:19:25.500 –> 00:19:44.319
Mike Knotts: And I have some control of my destiny. It’s not everybody else is insured with XYZ Insurance Company, or everybody else is insured in the same city I’m in, or the trucker down the road. Every situation is unique, and it’s unique to those members, because this is this member’s numbers.

106
00:19:44.350 –> 00:19:53.740
Mike Knotts: Two other things on this page. Where do you see anything regarding trucking, and where do you see anything that says anything about a particular state?

107
00:19:54.970 –> 00:20:03.359
Mike Knotts: This is strictly math, okay? So, I think this is the fairest way. Now, Lydia, the next page is what I call the Holy Grail.

108
00:20:04.410 –> 00:20:05.280
Lydia Wommack: Okay.

109
00:20:05.460 –> 00:20:06.200
Lydia Wommack: Here we go.

110
00:20:06.200 –> 00:20:10.790
Mike Knotts: So I’m gonna take that 902 that we just developed.

111
00:20:11.270 –> 00:20:19.779
Mike Knotts: right on the page before, times the current number of trucks at 28. Well, guess what? There’s my Ace Run Premium right there.

112
00:20:20.050 –> 00:20:22.090
Mike Knotts: Okay, in column 4.

113
00:20:22.140 –> 00:20:28.359
Mike Knotts: Okay? There it is. And in column 5, I’m taking 50% of my A fund.

114
00:20:28.360 –> 00:20:51.599
Mike Knotts: And there’s my B fund, remember? So my A Fund B fund? So now, I just got my A Fund B fund from the math, from Mark’s math, the page before. I now have Mark’s A Fund B Fund. Not mine, not Lydia’s, not anybody else’s. I have Mark’s A Fund B Fund calculation, and you see the total there. Well, guess what? Your fixed cost

115
00:20:51.730 –> 00:21:02.969
Mike Knotts: And that’s the page, two pages back, Lydia, that we’ll go to here in just a second. But your fixed cost is a mathematical function of your A plus your B. So, this is math.

116
00:21:03.090 –> 00:21:19.929
Mike Knotts: It’s based on your math, and you’re gonna hear me say one more thing, Mark, before your question. I see it coming. One more thing is, so, I tell my group, and I’ll tell you how we’re staffed a little different than most, and a question that y’all need to ask your agent.

117
00:21:19.930 –> 00:21:23.500
Mike Knotts: This is really important, because I tell them

118
00:21:23.500 –> 00:21:37.319
Mike Knotts: I’m not selling insurance anymore because your math does… figures out your cost, okay? We’re not shopping because you own this company, okay? So we’re not shopping. So I have two jobs.

119
00:21:37.320 –> 00:21:46.310
Mike Knotts: And I have 10 claims people, and I have 7 loss control people. And so my 2 jobs are to help you either prevent a loss.

120
00:21:46.440 –> 00:22:01.629
Mike Knotts: through safety, or to either mitigate a loss through my claims team, okay? And if I do that, I’m gonna affect your math on the page before, and if I affect your math, help you affect your math, you’ve just affected your cost.

121
00:22:02.110 –> 00:22:03.900
Mike Knotts: Not the guy down the street.

122
00:22:04.050 –> 00:22:17.069
Mike Knotts: Not the next trucker in the next county over, or whatever, you’ve just affected your costs. So, in my mind, this is the fairest way to buy insurance. And Mark, with that, I’m gonna stop, take a few questions, if that’s okay.

123
00:22:17.920 –> 00:22:22.990
Mark Rhea: Yeah, I had just one quick question on the ex… on the,

124
00:22:23.770 –> 00:22:30.239
Mark Rhea: expected loss ratio calculation. Who… who determines that?

125
00:22:30.240 –> 00:22:32.330
Mike Knotts: Okay, go back over a page, Lydia, if you will.

126
00:22:32.330 –> 00:22:35.200
Mark Rhea: Go back, I think it’s number 5 there.

127
00:22:35.200 –> 00:22:48.160
Mike Knotts: Right, right, so that is… that’s an industry expected, and the actuary comes up with that, and that’s, that’s just an industry expected. It’s… you can find those from,

128
00:22:48.160 –> 00:22:56.830
Mike Knotts: many different sources, and they very rarely vary. If they do, they vary a .1 or .2.

129
00:22:56.830 –> 00:23:14.000
Mike Knotts: But that’s a industry expected. And the longer you’re in the captive, Mark, I’ll say this, that’s an industry expected that we’ve used there, but the longer you’re in the captive, you start using the captive expected loss ratio, which is better than the industry.

130
00:23:15.800 –> 00:23:20.750
Mike Knotts: Okay, so that’s the advantage of being in the captive for a longer period of time.

131
00:23:20.890 –> 00:23:21.630
Mike Knotts: Now.

132
00:23:21.970 –> 00:23:32.839
Mike Knotts: I need to tell you right here, so… and I want to say this, so I’ll give you… I won’t mention their names, but I’ll give you two of my saltwater haulers, in North Louisiana.

133
00:23:32.900 –> 00:23:38.439
Mike Knotts: And one has 104 trucks, the other one has about 70 trucks.

134
00:23:38.460 –> 00:23:53.739
Mike Knotts: I have one that has had extremely good luck. He’s, you know, I’ll say his luck plays into this as much as safety or anything else, okay? But he’s had extremely good luck, and he does a good job with safety and hiring drivers.

135
00:23:53.860 –> 00:24:00.900
Mike Knotts: His cost for $2 million worth of auto liability insurance is $1,100 a truck.

136
00:24:01.040 –> 00:24:18.890
Mike Knotts: He actually pays more for physical damage because of some wrecks that he’s had that just were physical damage wrecks, okay? Which, again, goes in his physical damage column, doesn’t go in his auto liability column, but his auto liability for $2 million is $1,100 a truck. I pay more for car insurance.

137
00:24:19.540 –> 00:24:37.479
Mike Knotts: Okay? So, that’s that. But I have another client that is less than 20 miles from him, same captive, in the trucking business, does the exact same thing, runs on the same roads, does a lot of things. His… his cost is $8,800 a truck.

138
00:24:37.640 –> 00:24:41.350
Mike Knotts: That’s my example of, you know, everybody’s…

139
00:24:41.480 –> 00:24:45.950
Mike Knotts: Numbers determine their cost, and not the other guy’s cost.

140
00:24:47.070 –> 00:24:56.909
Mike Knotts: Okay? So, I just want to make sure that I make that, and this is something that is happening. If you buy traditional insurance today, you just don’t see it.

141
00:24:57.010 –> 00:25:09.709
Mike Knotts: Okay? You get to see this, and your agent and the captives will and should share this with you, okay? Because I will tell you, we…

142
00:25:10.090 –> 00:25:25.079
Mike Knotts: We give them all this data, your agent will give them all this data, and… and we find that, you know, when they give it back to us, and they give it to us, this is the other thing that’s really important, they give it back to us about, 75 days in advance of your renewal.

143
00:25:25.080 –> 00:25:37.890
Mike Knotts: And so, at that point in time, I pretty much know what your renewal’s gonna be. There’s a little bit more to it, but I pretty much know what your renewal’s gonna be. 45 days out, I know what your renewal’s gonna be, okay?

144
00:25:38.240 –> 00:25:55.180
Mike Knotts: But what… the reason we get it at 75, and it takes to 45, is they put an APD loss up in the AL section. They fat-fingered some numbers. You know, it’s just human error, and so we go back and check each one of these to make sure the numbers

145
00:25:55.180 –> 00:26:09.639
Mike Knotts: the losses were put in correctly, the exposures are correctly, because all these numbers play off of each other. So, anyway, I know I don’t want to harp on that, but Lydia, if we have some questions, I’m happy to answer some of those now.

146
00:26:14.870 –> 00:26:16.409
Mike Knotts: If we don’t, I’ll keep going.

147
00:26:16.410 –> 00:26:26.420
Lydia Wommack: I’m not seeing anything in chat right now, so I think we can just keep moving on, although we have a lot of people in, let’s see, Tennessee, Carolina, Texas, so…

148
00:26:26.420 –> 00:26:29.179
Mike Knotts: Yeah, yeah, well, let’s keep moving then. We’ll move.

149
00:26:29.180 –> 00:26:31.449
Lydia Wommack: My internet’s a little unstable here, guys.

150
00:26:31.970 –> 00:26:51.769
Mark Rhea: just an observation, Mike. I know, I know, you know, sharing risks can be a risky business, and I hadn’t seen anything in these calculations that if I’m in a captive with Lydia, that would impact her.

151
00:26:52.750 –> 00:26:54.140
Mike Knotts: Bad rate.

152
00:26:54.290 –> 00:26:58.160
Mark Rhea: For my rate. So if you’re sharing risks.

153
00:26:58.940 –> 00:27:03.730
Mark Rhea: I don’t see how your partners come into play here.

154
00:27:03.920 –> 00:27:06.540
Mike Knotts: You jumped just a little bit ahead of me.

155
00:27:06.540 –> 00:27:09.010
Mark Rhea: Oh, okay. That’s next.

156
00:27:09.010 –> 00:27:12.919
Mike Knotts: That’s the next spreadsheet. Yes, sir, keep going, lady.

157
00:27:15.010 –> 00:27:30.969
Mike Knotts: Let’s go 1. Alright, here’s an example. So, let’s just go right here. This is a typical example. I’m going to give you 3 years, and one of those is that sharing year, Mark, so you’ll understand. So, in this particular example, the actual word did its calculation.

158
00:27:30.970 –> 00:27:41.000
Mike Knotts: And, our premium for our… for our A fund, B fund, was $300,000. 220 in our A fund, and 80 in our B fund.

159
00:27:41.150 –> 00:27:42.030
Mike Knotts: Okay?

160
00:27:42.170 –> 00:27:52.060
Mike Knotts: That’s… that’s our calculation. And we had a typical year. We had a… we had a, live, APD claim, $50,000, so…

161
00:27:52.240 –> 00:28:05.279
Mike Knotts: $50,000 is below $100,000, so we go take that out of our A fund. We had $220,000 in there, we had $50,000, we got $170,000 left. We didn’t have a claim that approached our B fund, so we got $80,000

162
00:28:05.280 –> 00:28:13.720
Mike Knotts: out of our B fund, that we still get back. So this particular client on $500,000, because his, his,

163
00:28:13.720 –> 00:28:18.119
Mike Knotts: His, fixed cost was $200,000 in this example.

164
00:28:18.350 –> 00:28:30.240
Mike Knotts: And so, this client has got $250,000 of his money to come back to him, potential equity to come back as a dividend. Now, Mark, you’ll notice I put up there before risk sharing.

165
00:28:30.240 –> 00:28:39.469
Mike Knotts: Now, and I’ll say this here, because the next example is going to get into it. The B Fund is where you would share with Lydia or I, okay? And there’s…

166
00:28:39.470 –> 00:28:44.050
Mark Rhea: The A fund is on me, the B fund is part of the… of the co-op, or the risk pool.

167
00:28:44.240 –> 00:29:03.420
Mike Knotts: Yes, and you share… you can share with Lydia, but you only share, in this example, in this captive example, there’s other examples of captives, we won’t get that deep right now, but you only share, one up to the 80,000, and you only share after Lydia and I run out of our BFund.

168
00:29:06.010 –> 00:29:06.810
Mike Knotts: Okay?

169
00:29:06.810 –> 00:29:07.360
Lydia Wommack: Okay.

170
00:29:08.220 –> 00:29:15.260
Mike Knotts: Alright? So you’ll never… you never be more than your 80, and you never share until Lydia and I run out of ours.

171
00:29:16.550 –> 00:29:19.270
Mike Knotts: Okay, so next, next slide, Lydia.

172
00:29:24.470 –> 00:29:39.419
Mike Knotts: Alright, here we go. So, here’s an example. So, had a catastrophic year, okay? And you had a $500,000 claim, and then you had your $50,000 APD claim again, okay? So.

173
00:29:39.420 –> 00:29:57.819
Mike Knotts: A lot of moving parts here, so stay with me. So, at the very bottom, the 50 and the 500 are our two claims, okay? Well, the 50 obviously comes out of our A fund, that’s easy. And then, on the 500, again, it’s your A fund, so we’re going to only take out $100,000.

174
00:29:57.820 –> 00:30:01.540
Mike Knotts: So, we take out our 100, and then we go up to the…

175
00:30:01.540 –> 00:30:24.199
Mike Knotts: to the B Fund. Well, you’ve got 80 in there, but we need $200,000 to get to… remember, at $300,000 is where we buy reinsurance. That’s where we buy reinsurance from the reinsurance company, from the… from the, you know, the AIG, the National Interstate, the… the Zurich, the… whomever we buy from, that’s where we buy. Once we get there, they take it from $300,000 to $2 million.

176
00:30:24.500 –> 00:30:35.909
Mike Knotts: Okay? Alright, so we gotta get there, so we need $200,000. Well, we only have 80, so that leaves us $120,000 short. So where does that money come from? Well, Mark.

177
00:30:35.910 –> 00:30:55.080
Mike Knotts: if this is you, it’s not fair for Lydia and I to share with you, because you still got money in your A fund. You’re not out of money, okay? So we’re gonna go back down and get the $70,000 on the A fund, okay? So that gets your money, okay? And then, after you’re out, then Lydia and I are gonna share that $50,000.

178
00:30:55.160 –> 00:30:57.059
Mike Knotts: Okay? With you.

179
00:30:57.500 –> 00:30:58.640
Mike Knotts: You follow me?

180
00:31:00.490 –> 00:31:18.210
Mike Knotts: So, and again, I’m happy to go back to this. Lydia might want to remember this page number, if someone has questions later, but there’s a lot of moving parts, okay? But again, we gotta get it up to 300 to go into the… to go into reinsurance, take it above that.

181
00:31:18.280 –> 00:31:22.210
Mike Knotts: We got $100 out of the $500,000 claim.

182
00:31:22.330 –> 00:31:34.629
Mike Knotts: We went up and got 80 out of our B fund. We needed 200 more, okay? You had… we still had money left in our A fund, so we gotta go down and get that before the other members start sharing.

183
00:31:34.780 –> 00:31:36.819
Mike Knotts: Okay? And then here we go.

184
00:31:37.470 –> 00:31:38.390
Mike Knotts: Alright?

185
00:31:38.530 –> 00:31:39.190
Lydia Wommack: Sure.

186
00:31:40.290 –> 00:31:42.400
Mike Knotts: But here’s the thing to notice about that.

187
00:31:42.600 –> 00:31:43.990
Mike Knotts: Back one page…

188
00:31:47.130 –> 00:31:50.210
Mike Knotts: You ran out of your funds, and you didn’t have to come up with any more.

189
00:31:53.860 –> 00:31:55.470
Mike Knotts: You follow that, Mark?

190
00:31:56.060 –> 00:31:59.099
Mark Rhea: I do, I do, but Lydia’s gotta spit up a little bit of money.

191
00:31:59.410 –> 00:32:04.459
Mike Knotts: Yes, both those. There you go. Alright, but that’s what we got in here for. Now on the next page, Liddy.

192
00:32:05.990 –> 00:32:06.660
Lydia Wommack: Sure.

193
00:32:06.660 –> 00:32:16.999
Mike Knotts: Alright, now, this is one of those years, Mark, you couldn’t quit running into people. You just kept running into people, and you had $280,000 in claims, less than $100,000.

194
00:32:17.130 –> 00:32:20.620
Mike Knotts: Okay? So that’s the key, less than $100,000.

195
00:32:20.640 –> 00:32:39.459
Mike Knotts: Alright, so we only had 220 projected, so you had 280, so you got a $60,000 deficit there. Where’s that come from? Well, Lydia and I didn’t agree to share with you in the A fund, okay? And, you know, so you hadn’t gotten our B funds, so you can be assessed

196
00:32:39.460 –> 00:32:45.570
Mike Knotts: one more AFUN, you could be assessed the whole 220, but all you need is 60.

197
00:32:46.090 –> 00:32:53.319
Mike Knotts: Okay? So, they’re gonna spread… the captive’s gonna spread that assessment for you over the next 3 years.

198
00:32:53.690 –> 00:33:00.130
Mike Knotts: 50% the second year, 30% the third year, and 20% the fourth year.

199
00:33:01.280 –> 00:33:12.389
Mike Knotts: Okay? Now, if this was traditional insurance, and you had $208,000 losses, you’re either getting non-renewed, or you’re getting a big increase, and you gotta come up with it all at renewal time.

200
00:33:12.490 –> 00:33:24.930
Mike Knotts: Okay? So this is one of the advantages to the captive. It protects you against the big loss, but it also protects you against the small, majority of small losses.

201
00:33:25.260 –> 00:33:26.260
Mike Knotts: Okay?

202
00:33:26.440 –> 00:33:35.849
Mike Knotts: All right? And so, that you could be assessed an additional A fund, and I have had clients that have been assessed, one A fund.

203
00:33:35.850 –> 00:33:44.679
Mike Knotts: But when we got to that, and that was explained to them, one, they were happy that it was spread over 3 years, but two, they were just happy they didn’t get non-renewed.

204
00:33:44.680 –> 00:33:59.880
Mike Knotts: Okay? And they were happy they had insurance, because had we been out in the traditional market, and they had those losses, we were gonna be in a bind. And I should say this right here. I’ve been doing this, in captives since early 2000s.

205
00:34:00.170 –> 00:34:08.340
Mike Knotts: maybe the late 90s, but at least the early 2000s. I’ve never had a client get non-renewed for this situation.

206
00:34:08.540 –> 00:34:17.889
Mike Knotts: If I’ve had a client ask to leave the captive, and I’ve never… I’ve never had that, I’ve seen it with other… other agents, but I’ve never seen… I’ve never had that.

207
00:34:17.889 –> 00:34:30.610
Mike Knotts: But if I have had one, it’s because they wouldn’t make adjustments to their safety program, or they wouldn’t make adjustments to their hiring situation, and they wouldn’t participate because the other members are at risk.

208
00:34:30.610 –> 00:34:45.249
Mike Knotts: Okay? And the other members, you know, are depending on them. You’re in business with other people. So you have your trucker hat, which is for your own insurance, and then you have your, member, captive hat.

209
00:34:45.250 –> 00:34:50.999
Mike Knotts: As you are a member, so you have to be, you have to be cognizant of the other members.

210
00:34:51.100 –> 00:35:04.389
Mike Knotts: So, you got assessed here, and you gotta get that assessed at 60 over 3 years, but let’s go back up and look at one thing. Look at the top there on the page. You did have an A fund assessment of $60,000, but you didn’t have a B fund claim.

211
00:35:04.390 –> 00:35:16.369
Mike Knotts: Okay? So, you got $80,000, again, before risk sharing, assuming we didn’t have to share with Lydia and I, Mark, you have, $80,000 coming back.

212
00:35:16.370 –> 00:35:21.380
Mike Knotts: Okay? And so, let’s flip Lydia, to that.

213
00:35:23.180 –> 00:35:24.520
Mike Knotts: Next, please, please.

214
00:35:27.400 –> 00:35:29.120
Lydia Wommack: Thank you, we’re trying here.

215
00:35:29.120 –> 00:35:47.460
Mike Knotts: Oh, no, you’re good. So, I want to cover a couple things, and I just want to… these are big bullet points, and then I’ll do one. So, the assessment potential, again, is paid quarterly or semi-annually, depending on the captive. It’s paid over 3 years, and so it’s 50-30-20. Now.

216
00:35:47.480 –> 00:35:52.610
Mike Knotts: One of the other things that’s really, I think, fair about the assessment

217
00:35:52.760 –> 00:36:05.000
Mike Knotts: No fixed cost in there, okay? And no commissions in there. So you’re not paying your agent anything more, and you’re not paying the captive anything more for fixed costs. That’s truly the cost of the claim.

218
00:36:05.630 –> 00:36:06.749
Mike Knotts: Do you follow me?

219
00:36:07.270 –> 00:36:07.850
Mike Knotts: Okay?

220
00:36:08.200 –> 00:36:13.630
Mike Knotts: I talked about… the second thing is the $36,000, share of cost.

221
00:36:14.220 –> 00:36:15.200
Mike Knotts: Okay?

222
00:36:15.340 –> 00:36:28.929
Mike Knotts: And then to make sure that Mark is gonna pay his assessment, because he’s not gonna run out on Lydia and I after the first year, because we didn’t agree to share with him in the A Fund.

223
00:36:28.930 –> 00:36:35.460
Mike Knotts: Alright? There is collateral, and that can be put up in the form of a letter of credit or cash.

224
00:36:35.510 –> 00:36:54.919
Mike Knotts: And that has to be put up for 3 years, each… not 3 years at one time. It’s 2 thirds of your A fund, so if your A fund was 220, this is the reason we use, easy round numbers, your collateral would be 180, okay? And that could either be in a letter credit or cash.

225
00:36:54.940 –> 00:37:07.310
Mike Knotts: Okay, obviously the cash will draw interest and earn interest, and we’ll talk about that here in just a second. The letter of credit is just cost you the cost of the letter of credit. And so, typically that’s one and a half.

226
00:37:07.310 –> 00:37:18.300
Mike Knotts: one and a quarter, I’ve seen as much as 2%. So, let’s say $180,000, letter of credit, okay, you know, 1.5%.

227
00:37:18.300 –> 00:37:29.329
Mike Knotts: Be $1,800,900, $2,700, would be your cost of your… if it’s 1.5% for your… for your letter credit for that year.

228
00:37:29.440 –> 00:37:40.069
Mike Knotts: Okay? But everyone has to put that up, not just the people that are assessed. Everyone has to put that up, and that’s to make sure that we don’t run out on our assessments.

229
00:37:41.550 –> 00:37:42.290
Mike Knotts: Okay?

230
00:37:43.650 –> 00:37:44.550
Mike Knotts: All right

231
00:37:45.480 –> 00:37:58.760
Mike Knotts: who decides what companies can join the captive, and how… how they would be vetted? Well, David, that was a great question. Typically, if you’re, so, and I… and I’ve…

232
00:37:58.760 –> 00:38:12.230
Mike Knotts: didn’t want to get in the weeds, but I’ll do this real quick. This is a real high weed. So there’s heterogeneous captives, which could be multiple industries. It could be… I’ve seen fuel haulers and, movers.

233
00:38:12.230 –> 00:38:26.970
Mike Knotts: And, electricians all in the same captive. That’s a heterogeneous captive. And then there’s homogeneous captives. Homogeneous, obviously, being all trucking, okay? So that’s the first criteria right there. You want to be in a heterogeneous or homogeneous.

234
00:38:26.970 –> 00:38:30.979
Mike Knotts: Most of the guys, truckers want to be with truckers.

235
00:38:30.980 –> 00:38:48.230
Mike Knotts: They don’t like being in other industries, and a lot of times a heterogeneous doesn’t… electricians or air conditioner repair guys don’t like to be in with truckers because of the auto exposure, so… so they typically… that’s the first… the first deal. Second deal would be based off your losses.

236
00:38:48.230 –> 00:39:05.419
Mike Knotts: And that vetting is done between your agent and the captain manager, right up front, and we do most of that in my office, and so if you’ve got 5 years, I had one client that had a $6 million loss in 1 year, but his other 4 years were great.

237
00:39:05.430 –> 00:39:13.580
Mike Knotts: Okay? And so we call that a shock loss, and that member has now been in a captive with me for 6 years. So…

238
00:39:13.580 –> 00:39:20.630
Mike Knotts: You know, so really two, what we call risk-sharing years, out of 5.

239
00:39:20.630 –> 00:39:34.460
Mike Knotts: is… is where they really kind of draw the line, so if you’ve cost… if Mark had cost Lydia and I, but… and we were trying to get Mark in, and he had cost Lydia and I risk-sharing in 2 out of his 5 years, he’s probably not going to be a candidate.

240
00:39:34.500 –> 00:39:35.280
Mike Knotts: No.

241
00:39:35.400 –> 00:39:55.170
Mike Knotts: as you well know, I just showed you where that… that’s a rolling chart, so Mark’s luck may change, and one of those years may drop off, and so I… when I’m looking at clients, if I’ve vetted them and talked about them, and they’re truly worried about their safety, and they’re truly involved in their claim, but they just had 2 bad years out of 5,

242
00:39:55.170 –> 00:40:00.200
Mike Knotts: I call them getting them captive ready. And so, I’ll start talking to you.

243
00:40:00.230 –> 00:40:10.350
Mike Knotts: I’ll start working with Mark, and so, when that year drops off, then we can resubmit Mark to the captive, and get him in the captive at that time.

244
00:40:10.390 –> 00:40:27.609
Mike Knotts: But, again, the vetting process is I want to hear about your safety, I want to hear about how committed you are, I want to hear about your, you know, your commitment to claims. That’s the kind of things I want to hear about. And I have to, as an agent, for example.

245
00:40:27.610 –> 00:40:32.710
Mike Knotts: one trucking captive, I’ve got 28 members in out of 120.

246
00:40:33.040 –> 00:40:47.510
Mike Knotts: Well, my 28 members don’t want me to bring another bad member in, okay? So, my getting is pretty much my conscience, because I’ve got to answer those guys, as well as the other members of the captain.

247
00:40:47.770 –> 00:40:54.940
Mike Knotts: So, there’s several, vetting there that goes on. I will tell you, and again, not promoting myself.

248
00:40:54.940 –> 00:41:08.599
Mike Knotts: But you should make sure your agent knows something about Captis. There’s… there are some tricks to the trade, and there are some things that he needs to know to… to… to be able to explain that to you. That was a great question, David. Thank you.

249
00:41:09.410 –> 00:41:10.469
Mike Knotts: So.

250
00:41:10.470 –> 00:41:16.970
Mark Rhea: So when… so when they do the vetting, they’re gonna go well beyond basic FMCSA requirements.

251
00:41:16.970 –> 00:41:36.050
Mike Knotts: Absolutely. Your cab score, I forgot to mention, David, your cab score is very, very important in a trucking captain. If you’ve got, you know, two alerts, they’re going to want an explanation. If you’ve got 3 alerts, it’s pretty much no, okay? So, one of the first things we do is we run a cab report, we get your loss runs.

252
00:41:36.050 –> 00:41:55.079
Mike Knotts: Those are the… those are the first two things that we get. And your financials are last, but that’s, again, goes to an independent, financial analyst, not us, not the captive, and he vets them just really to make sure they’ve got liquidity, and they can pay their premiums and pay any assessments they may have.

253
00:41:56.160 –> 00:42:02.979
Mike Knotts: Yes, but it’s well beyond just, send me your loss runs, send me your policy, so… yes, sir.

254
00:42:03.650 –> 00:42:06.530
Mark Rhea: Cameras, online training… All that.

255
00:42:06.530 –> 00:42:07.210
Mike Knotts: Sir?

256
00:42:07.210 –> 00:42:10.159
Mark Rhea: Cameras, online training…

257
00:42:10.350 –> 00:42:24.470
Mike Knotts: Yeah, in fact, most of the captives have mandated at least forward-facing cameras, okay? And of course, we have a big discount with some camera services.

258
00:42:24.470 –> 00:42:31.519
Mike Knotts: 2 or 3 of the reinsurance carriers have National Interstate, for example, Great West have

259
00:42:31.520 –> 00:42:49.860
Mike Knotts: Range discount services as well, that, you know, for the camera services. And then 1% of your premium is set aside for safety, to help you be safe, and to help you hire consultants, okay, to help you. Or, you can use that 1% of your premium to buy cameras.

260
00:42:50.110 –> 00:43:00.230
Mike Knotts: Okay? Obviously, you won’t buy them all in one year, but you can, you know, use your… utilize your safety dollars. So that’s set aside for members to spend on safety.

261
00:43:00.570 –> 00:43:08.170
Mike Knotts: And we have several members that spend it with y’all, on the INFINITI. And so, yes, so being safe is…

262
00:43:08.310 –> 00:43:20.540
Mike Knotts: Obviously your other members want you to be it, you want to be it, because you’ve got an incentive to be it now. Think about all these years in the past, everybody promoted safety and told you to be safe, but you didn’t know if you ever got anything far.

263
00:43:20.810 –> 00:43:30.109
Mike Knotts: Okay? You didn’t see that discount that they promised you, or that premium savings. Well, now you actually can see it, you know, based off of your loss pit.

264
00:43:32.960 –> 00:43:33.920
Mike Knotts: Fair?

265
00:43:35.090 –> 00:43:38.330
Mike Knotts: Alright, one other… one other thing I wanted to point out.

266
00:43:38.570 –> 00:43:50.529
Mike Knotts: I’ve talked about getting your premiums back, or getting your dividends back. I want to tell you that that starts at the end of the third year, because as we know, auto liability claims and workers’ comp claims don’t settle.

267
00:43:50.530 –> 00:43:59.990
Mike Knotts: Right away, so you’re… every one of you will have… if you go into a captive, you will have a captive account, a member equity account.

268
00:43:59.990 –> 00:44:12.730
Mike Knotts: Okay? And you will get a member equity statement, quarterly or semi-annually, and you will be able to see what your… what’s in your member equity statements, how much money is there.

269
00:44:12.740 –> 00:44:26.630
Mike Knotts: Okay? And that money, comes back to you at the end of the third year. That money for the third… the first year comes back at the end of the third, the second comes back at the end of the fourth, and it’s a rolling situation.

270
00:44:26.630 –> 00:44:35.980
Mike Knotts: And so, so you will be working on those claims and be involved in my practice. We do quarterly claims reviews.

271
00:44:35.980 –> 00:44:53.649
Mike Knotts: So, you know what’s happening with your claims, how many of you have ever been in a fender bender at a red light, and you thought, man, I didn’t do any damage, okay? But then you turned it in to your insurance company, and the next thing you know, they’re writing a check for $50,000, okay?

272
00:44:53.720 –> 00:45:07.789
Mike Knotts: Well, I can’t tell you that doesn’t happen with us, but I can tell you we have a method called Quick Strike, and through the captives, they allow us to send out custard adjusters, or one of my claims people.

273
00:45:07.790 –> 00:45:15.530
Mike Knotts: And we have the ability, to, settle that claim, if we can put somebody in a rent car.

274
00:45:15.540 –> 00:45:35.489
Mike Knotts: give them the cost of the damage, and put them in a rent car, and that’s $5,000 or $10,000 versus, you know, $50,000. We have the ability to do that. And so, only through the claims, you know, traditional insurance doesn’t allow us to do that. And again, I’m knocking traditional, because I have both. I sell both.

275
00:45:35.490 –> 00:45:48.689
Mike Knotts: And so, because everybody’s not a captive client, but we have the ability to do that through the captive. And so those quarterly claims reviews, how many of you have had a workers’ comp incident that you just felt like

276
00:45:48.690 –> 00:46:03.060
Mike Knotts: the guy was just dragging on, it’s first part of deer season, it’s the first part of the bass spawn, and you can’t seem to get him back to work. Well, you can, in those quarterly claims reviews, you can ask for that person

277
00:46:03.060 –> 00:46:09.869
Mike Knotts: To be, put on, surveillance, and… or private eye put on them.

278
00:46:09.870 –> 00:46:19.170
Mike Knotts: And so, you know, or we can ask for a nurse case manager to go to the next doctor’s appointment with them. And so, you have the ability to affect your claims.

279
00:46:19.350 –> 00:46:28.399
Mike Knotts: Okay. My wife just slipped me a note, my manager, that is, Lydia, just slipped me a note, said 10 minutes, so… so, one more page, I think.

280
00:46:28.750 –> 00:46:29.470
Mike Knotts: Bye.

281
00:46:32.900 –> 00:46:36.799
Mike Knotts: Do I have a… no, no, this is for y’all. Okay,

282
00:46:37.460 –> 00:46:41.539
Mike Knotts: And you can put that in if you’d like, but does anyone have any questions?

283
00:46:44.930 –> 00:46:47.420
Lydia Wommack: David has another one here in chat.

284
00:46:47.420 –> 00:46:48.090
Mike Knotts: some people.

285
00:46:48.390 –> 00:46:54.029
Mike Knotts: Are there regular assessments to ensure the members are staying in line, financially struggle?

286
00:46:54.030 –> 00:47:12.399
Mike Knotts: accounts. Those… your… every… every, renewal, your financials are, reviewed by an independent third party. I like the fact that it’s an independent third party, it’s not the captive manager, it’s not me, and so, yes, you… I just had a client get put on the financial watch list.

287
00:47:12.400 –> 00:47:15.770
Mike Knotts: Which simply means he’s gotta clean up his financials.

288
00:47:15.770 –> 00:47:29.139
Mike Knotts: You get put on a watch list, either risk or financial. You have a year, to clean up your stuff or explain it. And, you know, in the event… I’ve never had anybody not

289
00:47:29.140 –> 00:47:36.580
Mike Knotts: Clean up their financials or not, go through the risk, risk, safety, requirements already.

290
00:47:36.840 –> 00:47:48.989
Mike Knotts: This is us, our Captive Ready program. Love for anybody that’s in need of looking at something or has any other questions. I’m happy to answer them and to do whatever.

291
00:47:49.400 –> 00:47:56.159
Mike Knotts: Again, some more… happy to answer more questions, but thank you guys at INFINITI for your time today, and letting me be part of this.

292
00:47:57.240 –> 00:48:02.140
Mark Rhea: One more observation or comment on the traditional versus the captive.

293
00:48:02.180 –> 00:48:10.339
Mike Knotts: The complaints that I hear, and experienced myself personally were inflated reserves. Yes.

294
00:48:10.340 –> 00:48:17.750
Mark Rhea: And the inability to actively participate in the claim.

295
00:48:17.860 –> 00:48:24.779
Mark Rhea: Examples of that would be, you know, a small fender bender, they throw a…

296
00:48:24.900 –> 00:48:40.449
Mark Rhea: $40,000 reserve, and then you get sued, and now they throw a $700,000 reserve at it. Do you have a little more input or control over that reserve in a captive?

297
00:48:40.900 –> 00:48:53.960
Mike Knotts: Yes, you do, and and so… and I went out, I’ve hired 10 ex-claims adjusters. That’s what I hired, and I gotta be honest, when I was by myself.

298
00:48:53.960 –> 00:49:17.969
Mike Knotts: prior to 5 years ago, I couldn’t afford to hire 10 claims adjusters, and I couldn’t afford to have 70 claims safety people, but Higginbotham has allowed me to do that, and… and it’s putting my money where my mouth is, because we spend a lot of money on that team, but that team meets quarterly, and that adjuster from the insurance company, from the reinsurance carrier, and my team are on the phone.

299
00:49:18.040 –> 00:49:35.319
Mike Knotts: And there will be an open debate about the cost of a reserve, or there will be… my team is the front end of who you call, so before we even involve a juster, if there’s ability to solve that claim and to put them in a rent car, or to, you know, go get their car fixed.

300
00:49:35.320 –> 00:49:43.800
Mike Knotts: We do that. So, we have the ability to do that. So, that’s one of the biggest things that the captive gives you, is the ability to be involved in claims.

301
00:49:44.850 –> 00:50:01.519
Mark Rhea: So, so the other, the other second part, the second complaint is, of course, the… the… the participation. I hear this all the time. My insurance company hired an attorney, they didn’t… they… they were scared to go to trial, they were scared to defend it, we ended up settling it under a…

302
00:50:01.540 –> 00:50:12.700
Mark Rhea: ridiculous amount. As a member of the captive, you would have at least input on how a claim is settled.

303
00:50:12.950 –> 00:50:31.959
Mike Knotts: Yeah, I’m not gonna make a blanket statement, but I’ll say this. 9 out of 10 of the captives allow us to pick our own attorneys. Now, obviously, that attorney’s got to be vetted, like the members are. One, they’ve got to accept the rates that the insurance companies pay, and that’s the biggest deal, but two, they have to know something about trucking. We don’t want to hire a divorce attorney

304
00:50:31.960 –> 00:50:36.039
Mike Knotts: You know, to… to be… Our trucking company

305
00:50:36.040 –> 00:50:59.559
Mike Knotts: defense counsel, so they’ve got to know something about that, but we, as Higginbotham, handled over 1,250 liability claims last year and 700 workers’ comp. Been doing this now for 20-plus years. We’ve developed a laundry list in 20 states of attorneys, defense counsel, that are vetted and that are good at defending trucking companies.

306
00:50:59.560 –> 00:51:14.830
Mike Knotts: So, they’re… they’re pretty much… they stick out, but yes, you can have selection in your council, and you do have ongoing… every quarter, you’re gonna be in that call with us, talking about that litigation. Your attorney’s gonna be on the phone.

307
00:51:15.060 –> 00:51:29.330
Mike Knotts: Okay? Your adjuster from the insurance company is going to be on the phone with us, and all we do is represent you. We don’t represent them, we represent the member, and so that… Hey, Lydia, I saw a question come up, but I didn’t read it fast enough, I apologize.

308
00:51:30.780 –> 00:51:42.809
Lydia Wommack: Charlie commented, it took us 5 years of trying to get into a captive, but it’s definitely worth it. Been in for 7 years, and we were very active in our claims process, and even with a few assessments, we’re still consistently seeing returns.

309
00:51:42.810 –> 00:51:57.810
Mike Knotts: Absolutely. And if you’ve got assessments, Charlie, I agree with you, if you’ve got assessments, that was because of your sins. We call our A Fund your sins, okay? And that was because of your sins, and so, you know, you know what it is. I mean, it’s the fairest way to buy your insurance.

310
00:51:59.870 –> 00:52:14.589
Mark Rhea: So if you’re not in a captive, you need to try to get into one, but you can’t just raise your hand and get into one, and Lydia, I know INFINITI and online training is a huge part of controlling, managing those risks that we all take out there.

311
00:52:14.790 –> 00:52:31.499
Mike Knotts: That’s absolutely correct. I have a saying that says, anybody can put you in a captive, we make it work, and we make it work with partners like you guys, that help us on the safety side to prevent losses. So, so I… it’s work. It’s not a… it’s not just your guy down the street.

312
00:52:31.500 –> 00:52:42.820
Mike Knotts: Every time I present one to a new prospect, his… as we have to get lost runs from his old agent, the old agent says, oh, well, I can do that. Well, my first question is, why haven’t they?

313
00:52:42.820 –> 00:52:59.940
Mike Knotts: That’s number one, okay? And number two, how many cabinets do you have? And so that should be two questions that you should ask your agents if they say, oh, I can do cabinets. Well, how many do you have? And why hadn’t we looked at this before? That ought to be two big questions.

314
00:53:02.500 –> 00:53:17.130
Lydia Wommack: Good, good. Mike, thank you so much. Everyone, we… if you have any further questions, we had Mike’s information on the screen. We’ll share a replay of this, so you can, you know, watch it back again, and his contact information if you want to reach out and ask

315
00:53:17.190 –> 00:53:32.179
Lydia Wommack: other questions. I do have just a quick, poll I’m launching that you can, you know, answer if you want more information. One of the things that we do, we worked with… one of our client success stories is the client went from non-renewable to pretty bad accidents.

316
00:53:32.300 –> 00:53:56.340
Lydia Wommack: into a captive within about a 5-6 year span, and that was doing things with us, a proactive preventative safety plan and proactive pre-assigned training to kind of automatically go, but then tons of stuff within the company and looking at the safety culture within the company, so if you’d like to take a look at that with us, we’d be glad to look at it. We also have a free event every month boot camp, which is hosted by Steve Kessler and Mr. Mark Gray here.

317
00:53:56.370 –> 00:54:14.960
Lydia Wommack: And Boot Camp is a proactive look at risk mitigation strategies, the latest trends, and then, of course, safety best practices, training best practices. We bring in trucking defense attorneys and insurance partners to talk about real tactical things that you can do to your company, you know, to make an incremental change starting now.

318
00:54:14.960 –> 00:54:25.350
Lydia Wommack: So that event happens twice a month, and then, of course, any of you who are NAPME Directors of safety, this is a webinar can be used for recertification points, so we can send you

319
00:54:25.350 –> 00:54:42.929
Lydia Wommack: send you a webinar. So, with all that business taken care of, Mike, again, thank you so much. Mark, thank you, as always, and if y’all are available tomorrow, hop on in, because we are, again, talking with Brandon Weissman about the upcoming pilot program, and so lots to learn there, too. Thank you, everyone.

320
00:54:43.240 –> 00:54:44.120
Mike Knotts: Thank you.

321
00:54:44.490 –> 00:54:45.990
Mark Rhea: Thank you. Thank you, Mike.