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How much does a CIC Cost?

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A CIC is a real insurance company. The initial setup of the company involves the legal work in forming the company and drafting the legal documents that control the CIC’s operations (and interaction between shareholders of a multi-member CIC); the legal approval of the company and its shareholders by the licensing jurisdiction (called due diligence); underwriting, actuaries, and other policy issuing costs for the first year’s policies; feasibility study; business plan; and a number of details required to get a brand new insurance company off the ground.

For a pure captive, this initial setup cost is typically $65,000 – $70,000. Then, annual costs are about $40,000-$50,000 a year for accounting, annual fees to the domicile government, and expenses related to issuing insurance policies each year. In practical terms, that is $65,000 – $70,000 to save $540,000 in taxes. (That this 12% of initial expenses on the high end of the estimate to save 45% on current year taxes and then 9% in annual expenses to save 45% on current year taxes.)

For a cell captive the complexity of the legal agreements is greater, the shareholder due diligence is multiplied by the number of shareholders, and each policy still requires individual underwriting and actuary costs. The result is that a 4 member CIC would cost approximately $85,000 – $100,000 to start (depending on the time each person takes to complete due diligence, how much discussion and planning is required to bring the clients to the point of decision, and then how many policies need to be issued the first year). Costs for a cell captive are typically much less at $35,000-$50,000 per year. The annual costs in a multi-member CIC are also more since there is interaction and planning with multiple shareholders, multiple insurance policies, and increased accounting and reporting requirements caused by multiple members. However, as with the initial costs, there are economies of scale and the annual costs are not simply multiplied by the number of members. Annual costs for a 4 member multi-member CIC would be approximately $65,000 – $75,000 per year and would depend significantly upon how much hand-holding shareholders required and how many polices are issues (the Shareholder Agreement can be drafted to allocate costs to the members that have more polices and require more resources). In practical terms, that is $21,500 – $25,000 (initial costs divided by 4) to save $135,000 in taxes. (That this 18.5% of initial expenses on the high end of the estimate to save 45% on current year taxes and then 13.9% in annual expenses on the high end of the estimate to save 45% on current year taxes).

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