A LONG HISTORY OF COMMITMENT TO THE SUCCESS OF THE CAPTIVE INDUSTRY

Vermont has been a captive insurance industry forerunner for four decades, and collaborates closely with others to promote the sector, says the Vermont Department of Economic Development.

In 2021, Vermont celebrated its 40th anniversary as a captive insurance domicile. At the time, captive insurance was very much an industry dominated by offshore jurisdictions, with Vermont becoming one of the first US states to wade into captive waters.

Driven by growth in the early 1980s and a hard market that hit in 1985, the whole captive insurance industry took off. Vermont—with a few years of experience under its belt before the hard market hit—was off to a good start.

David Provost, deputy commissioner in Vermont’s Captive Insurance Division in the Vermont Department of Financial Regulation, says: “The landscape has changed since Vermont began its captive journey. There are now approximately 6,000 captives worldwide and more than 35 US states have captive laws, with at least another 40 domiciles worldwide.”

Vermont maintains its position as a forerunner in the captive insurance industry, updating its laws every single year and placing a high priority on communication with captive owners.

In 2021, Vermont licensed 45 new captive insurance companies, the fourth-highest total the state has recorded in its four decades as a domicile. Vermont is now home to 620 licensed captives, 589 of them active.

In the bigger picture, the landscape has also changed, says Provost.

“Captives are no longer the alternative market, they’re a big part of the commercial insurance market. It’s no longer some oddball industry that you go to an island to work on,” he says.

Captive formation is no longer unusual—most large companies have a captive or alternative risk transfer built into their systems. Indeed, the majority of companies on the FTSE 100 and Fortune 500 utilize captives.

The impact of the captives industry is keenly felt by smaller economies, such as Vermont. “In larger states captive legislation may be much less attractive to the legislature and governors as a few hundred extra jobs is not significant to their economy. But for states such as Vermont, the industry is a huge boon in terms of direct and indirect jobs, and the provision of tax revenue,” says Provost.

“We have to come up with new ideas to attract people to the industry.” BRITTANY NEVINS, VERMONT DEPARTMENT OF ECONOMIC DEVELOPMENT

Long-standing partnerships

In 2001, Vermont launched its own economic impact study, looking at how the captive insurance industry could benefit the state, including the amount of jobs created and other economic data. The data showed the importance of the captives industry to the Vermont economy.

“We call this the study that launched a thousand domiciles,” says Provost. “States were regularly submitting public information requests to see this study and apply it to their own situation.”

The mastermind behind the economic contribution study was none other than Dan Towle, the former director of financial services for the State of Vermont. In April 2017, Towle departed Vermont after 17 years to serve as president of the Captive Insurance Companies Association (CICA).

Provost adds: “Most of my work with Dan was after I was promoted to deputy commissioner. He was already a pro. It was great to have somebody who knew how to deal with the press and present a very consistent message.

“When you’re in a visible job, especially when you’re newly appointed, everyone wants to meet you. Dan helped me prepare for that. We worked together from the day I was appointed to the day he left to join CICA, undertaking numerous roadshows to promote Vermont as a domicile.”

Provost’s work with Towle has continued, albeit as part of the state’s work with CICA in promoting the captive industry.

One of the clear aims of Vermont, CICA and other captive associations is to attract more people into the industry and all stakeholders are playing their part.

Interns are a regular feature in Vermont’s Department of Financial Regulation, whether that’s interns within the department itself or visits from interns working at companies.

Many captive service provider companies attend job fairs at the University of Vermont and elsewhere to recruit for local Vermont jobs. The state was also one of the original sponsors of the International Center for Captive Insurance Education, a provider of captive insurance education based in Vermont but with an international scope.

Vermont will soon be launching a webpage focused on captives as a career choice, publishing a series of articles and videos put together to try to connect more with people who have little to no idea about the industry.

Vermont is working within CICA’s committees to attract new people to the industry.

For example, CICA’s Amplify Women program is fostering education, influence and networking among women in the captive insurance industry. Vermont’s director of the Captive Insurance Division, Sandy Bigglestone, is chair of the Amplify Women education subcommittee.

Additionally Brittany Nevins, captive insurance economic development director in the Department of Economic Development, has joined the NEXTGen Committee, which she says is “working on getting resources out there for those entering into the industry and on creating opportunities for those people to grow into the industry”.

“CICA has helped a great deal to raise this issue on an industry-wide level. The industry can’t ignore it any more, we have to come up with new ideas to attract people to the industry,” says Nevins. “The impact that CICA has had on raising the voice of people who haven’t necessarily been able to speak in the past and providing opportunities for leadership growth has made a huge difference in the industry so far.”

“Vermont is not content to sit quietly and let others do the work—it seeks collaboration and partnership where it can.”

Industry cooperation

In addition to working with captive associations, Vermont is working with other states to promote the captive insurance message and help the industry in other ways.

The Vermont Captive Insurance Association, CICA and the Captive Insurance Council of the District of Columbia in January urged the US Treasury Department to maintain captives’ access to the Terrorism Risk Insurance Program (TRIP).

TRIP was established under the Terrorism Risk Insurance Act (TRIA), a 2002 act that created a federal backstop for insurance claims related to acts of terrorism. The Treasury had requested public comment regarding the participation of captive insurers in TRIP.

“This is very important. Most captive owners are large organizations and they need access to TRIA. Just because they’re not buying from the traditional market doesn’t mean they should not have access,” says Provost.

According to the associations, limiting the access of captive insurers to TRIP would seriously undermine the stability TRIA provides, along with being contrary to Congress’s purposes in enacting and reauthorizing the act.

The associations argued that attributing captive parent revenues to captive insurers for TRIP-deductible calculation purposes could make terrorism insurance provided by a captive insurer unaffordable for many insureds.

In turn, this would reduce capacity for terrorism insurance and threaten the stability of the market.

Provost says: “People are not gaming the system. We need access to this backstop. With the government acting as a reinsurer, we expect captives to provide the information requested and the government to work with captives to backstop them as an insurance company.

“It’s understandable if the Treasury wants to adjust deductibles. We will work with them to make reasonable adjustments.”

Vermont’s decision to partner with CICA and the District of Colombia is just one example of the state’s readiness to advocate for the captive insurance industry and captive owners.

Being at the forefront of the industry seems to have placed Vermont in a prime position to be a captive advocate to the wider world. It’s a position that the state seems to revel in: from advocating in front of the government to education to promotion, Vermont is not content to sit quietly and let others do the work—it seeks collaboration and partnership where it can.

Provost concludes: “No matter where it’s based, forming a new captive is good for business. We can all work together to make sure the industry is healthy.”

To find out more visit Vermont Captive Insurance: www.vermontcaptive.com