Before and After: A Property Management Company's Insurance Costs vs. Captive Returns

A before and after view is the clearest way to see what a captive does to a property management company’s insurance costs. This post walks through an illustrative model for a mid-size company that manages 2,500 units across 18 properties and employs 35 people. It is built from the programs we’ve built, not a quote.

Before: the traditional structure

• Resident insurance through a third-party provider: 1,800 enrolled residents paying $18 a month, or $388,800 a year in premium, with the operator receiving a $2 per resident monthly fee, or $43,200 a year

• Property and habitational: $1,650,000 a year, or $660 a unit

• GL and umbrella: $325,000 a year

• Workers’ comp for 35 employees: $95,000 a year

• D&O, E&O and EPLI: $68,000 a year

• Total insurance spend: $2,138,000 a year

• Insurance income: $43,200 in fees

• Net insurance cost: $2,094,800 a year, or about $838 a unit

At a 17% blended loss ratio over three years, this company’s premium generates an estimated $1.13 million a year in carrier underwriting profit. None of it comes back beyond the $43,200 fee. Our guide on how to calculate that number for your own portfolio walks through the method.

After: full captive structure at year 3

• Resident program: $388,800 in premium at a 15% loss ratio, for about $168,200 a year in distributions

• Property and GL cell: $1,200,000 in captive-eligible premium at an 18% loss ratio, for about $392,000 a year after reinsurance

• Workers’ comp: $95,000 in premium at a 20% loss ratio, for about $45,600 a year

• Professional lines: $68,000 in premium at a 22% loss ratio, for about $31,280 a year

• Total distributions: $637,080 a year

• Premiums paid: $2,138,000, unchanged, with the same coverage and terms

• Net insurance cost: $1,500,920, or about $600 a unit

Our programs have consistently averaged 75% to 93% resident enrollment over time, so 1,800 enrolled residents on 2,500 units is a reasonable base.

The comparison

• Net insurance cost before: $2,094,800

• Net insurance cost after, at year 3: $1,500,920

• Annual improvement: $593,880

• Per-unit change: about $838 down to about $600, a $237 reduction

That improvement doesn’t come from cutting coverage or raising deductibles. It comes from changing where the underwriting profit goes. See our full guide to captive insurance for property management companies.

The asset value angle

At a 5% cap rate, $593,880 in annual cash flow improvement implies about $11.9 million in asset value, from a structural change that took 60 to 90 days to set up. That figure is illustrative.

Years 1 and 2

Steady state doesn’t arrive on day one:

• Year 1 distributions: about $127,000 to $191,000 as enrollment builds and loss history forms

• Year 2 distributions: about $382,000 to $478,000 as property distributions begin

• Year 3 distributions: $637,080 at steady state

Three-year cumulative distributions: about $1,146,000 to $1,306,000. Compare this with the broker model over 10 years.

How Insur3Tech fits

Insur3Tech’s captive has no minimum premium and no unit minimum; portfolios as small as 4 doors can join. There are no holdout periods. The entire program is reinsured, so you carry no downside risk. What isn’t spent on claims comes back to you. We insure 100,000+ doors.

Want your company’s before and after? Book a free discovery call. We’ll audit your portfolio for free and tell you how much you can expect to get back every year.