Multi-Unit Franchisee Magazine Issue II, 2017 | Page 60

Captive
BY EDDY GOLDBERG
INSURANCE
TURNING AN EXPENSE INTO A PROFIT
A
fter 9/11, Mike Borchard
watched his annual insurance
premiums for his 15 Carl’s
Jr. restaurants in San Diego
more than triple, from about $300,000 to
about $1 million. Borchard, an attorney,
and his partner, a restaurateur with some
Carl’s Jr. locations of his own and about
a dozen Denny’s, had heard about cap-
tive insurance and began to look into it.
“We didn’t know a lot about them,
but were told a captive insurance com-
pany could help us reduce our costs and
control workers’ comp and our future
exposure,” says Borchard. After about a
year of speaking with lawyers and insurers
to learn more about how captives work
and if they were a viable option, they
met Everett Newman, who was able to
explain the concept and help them cre-
ate the Restaurant Franchise Captive
Program (RFCP).
Basically says Newman, managing vice
president
at York Alternative Risk Solu-
tions, a captive is “an insurance company
created and fully owned by one or more
non-insurance companies to insure the risks
of its owners.” Its two primary benefits
are the ability to recoup a percentage of
your insurance premiums, and the abil-
ity to exercise greater control over how
claims are settled. He says captive mem-
bers like that control almost as much as
the money they get back.
“Insurance companies make a lot of
money on your business from the premiums
you pay. So why not get into a program
where you pay the same premiums, but
instead of the insurance company getting
the underwriting profits, you get them.
You’re paying the same money but you’re
getting a significant part back,” says New-
man. “In our RFCP program, members
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on average have gotten back 30 percent
of what they paid in.”
Borchard, whose M&N Foods now
operates 56 Carl’s Jr. restaurants, became
a founding member of the RFCP, set up
through York and serves as president.
Borchard says that through the program,
he’s been able to recoup about 40 percent
of his annual premium of approximately
$1 million
Captives are not for the faint-hearted,
however, nor for the impatient. It takes
an initial investment that puts capital at
risk, and takes about 4 years to start pay-
ing off. But for a franchise organization
that takes safety seriously and is willing
to invest the money on the front end, the
payoffs down the road can be tremendous.
Mike Borchard
Borchard says getting into the program
was one of his best decisions as a business
owner. In fact, he says, it’s done more to
enhance his profitability than any other
single thing he could have done.
RFCP: how it began
The RFCP, a program of York Risk Services
Group, began in the midst of California’s
“hard market” in 2004, when workers’
comp insurance rates were skyrocketing
and many businesses failed or left the state.
After Borchard and his partner collabo-
rated with Newman to form the RFCP,
they began writing insurance in July 2004
with $2.4 million in premiums. The fran-
chisees’ primary goal was to gain control
of their insurance costs through greater
access to claims management and by fo-
cusing on improved safety practices. And
they succeeded: in the dozen-plus years
since the program’s inception, they were
able to drive down the cost of their work-
ers’ comp, general liability, and property
insurance to the lowest levels they’d ever
experienced.
Today the program, now in its 13th
year, has 35 franchisee members with ap-
proximately 2,000 locations in 30 states.
Total premiums now exceed $22 million.
Over its first 12 years, the RFCP had a
loss ratio of 33.7 percent (industry norms
are in the 55 to 60 percent range) and
has returned more than $10.8 million in
profits to its members.
Returns in the captive are calculated
based on each member’s individual ex-
perience. If a member has no losses in a
policy year, they can have their full loss
fund premium returned, less any risk shar-
ing among members. Investment income
is distributed to each member on a pro-
rata premium basis. Historical investment