My client looked at the calculator results and asked me to explain what the numbers actually mean. Walk me through how to interpret the output.
The calculator was built from frustration. Warren couldn't get a quick read on a prospect without sending over a full submission and waiting. So he built a tool that gives you the picture in minutes. Here's how to read what it produces and how to explain it to your client.
The output is built around three things. What your client could have kept in underwriting profit. What they could have earned in investment income on their collateral. And what their maximum out-of-pocket exposure would have looked like in a bad year. Together, those three numbers tell the story of whether a captive makes financial sense for this particular client.
The underwriting profit is the headline number. It's the money left over after claims and expenses. In the traditional market that money goes to the carrier. In a captive, it stays with your client. The calculator estimates that figure based on the premium and loss numbers you entered. It's not a guarantee. It's a projection grounded in their actual history. If your client has clean losses, this number will be meaningful. If their losses are high, it won't look as attractive, and that's the calculator doing its job.
The investment income number is lower, but worth pointing out. The money sitting in the loss fund and the collateral account earns a return while it waits to pay claims. Your client has never seen that benefit before. In the traditional market, investment income goes to the carrier, too. Here it belongs to your client.
The maximum out-of-pocket number is the one that makes some clients nervous. It represents the worst-case financial commitment in a bad year. You want to show this number proactively. Don't let your client find it on their own. Walk them to it and explain what it means. This is the most you would ever be asked to contribute in a single year. It's not typical. It's the ceiling, not the floor. And it's capped by design.
How to frame the conversation. You're not showing them a guaranteed return. You're showing them what's possible based on how they've actually performed. The business that has run clean operations for five years and keeps writing checks to a carrier that never gives anything back is exactly the client this tool was built for. That number you're circling is what they've been subsidizing by covering someone else's poor performance.
That's usually when the conversation gets interesting.
It's always your client. Never ours.
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