Utah Insurance Department
Onwards and upwards: Utah forges ahead
Travis Wegkamp of Utah Insurance Department talks to Captive International about what has been a good year for the state as a captive insurance domicile.
“We need to stay flexible and be able to respond to trends and changes in the industry.”
Travis Wegkamp
Utah Insurance Department
Utah’s position as a captive insurance domicile was strengthened by the state having a good year in 2022, according to Travis Wegkamp, director of captive insurance at Utah Insurance Department.
Wegkamp said that the year had been its best since 2016–17, with net growth in the number of licensed captives in Utah rising over the year from 386 to 419, growth that he keenly welcomed after six or seven years of falling numbers due to a decline in numbers in the 831(b) or microcaptive space.
“Even when the number of captives fell, Utah continued to see growth in its gross premium rate via captives, a trend that continued in 2022, hitting just over $2.2 billion in gross premiums written for the year, which is a new record for the state,” he added.
According to Wegkamp, the captives now coming to Utah are larger, more robust programmes doing more volume, a trend that he has welcomed—and which again seems to be continuing. He expects to see more of the same as 2023 goes on.
Looking at the slight cooling down of microcaptives, Wegkamp blamed that on a number of factors, including recent legislation in 2017 that affected ownership structures that made them a little less desirable.
He highlighted the continued scrutiny of the Internal Revenue Service (IRS) on microcaptives without a clear set of rules or guidelines that they want to see. “For the most part the industry wants to comply and to set up a captive that the IRS isn’t going to have issues with,” Wegkamp said.
“Unfortunately, the industry is not getting any sort of cooperation in that regard. The industry would appreciate guidance instead of censure.”
Utah did not send in any public comments on the new microcaptive regulation that the IRS has suggested and which was up for a public hearing in the last half of July. However, Wegkamp said that the Utah Captive Insurance Association worked with a group of other associations to help develop some comments that were submitted to the IRS.
Beating the chilling factor
Looking at the challenges that Utah is facing at the moment, Wegkamp said that while he didn’t want to keep pointing to the IRS, its scrutiny is having a chilling effect on the market, as the impact on microcaptives can creep over and put a bit of a chill on the industry overall.
However, he did say that there is some good news, adding that to some extent the larger corporations, the Fortune 1000-listed companies are now all familiar with the captives concept and essentially now all have captives in operation.
“It’s the middle market, the lower middle market, where we need to get awareness of captive insurance out there,” he stressed. “Those business owners need to know that captives are an option, particularly in this hard market, so that they can take advantage of potential other opportunities to finance the risk.
“That continues to be an issue, to raise awareness. And of course there’s competition in general with domicile as we get more captives getting more active in the space which, overall, is a good thing.
“We hope that a rising tide will lift all boats. That said, we need to stay flexible and be able to respond to trends and changes in the industry. I feel we’re pretty responsive in that regard, we’re able to make legislative changes to remain competitive and that’s an important thing.
“At this point, we’ve still got that edge. But it’s becoming more and more of a challenge—so it’s important that we can meet that challenge.”
Wegkamp added that it’s important to make sure that the Utah legislature is not doing anything that impacts the market, but also to ensure that they’re willing to make changes to stay competitive and respond to current trends and needs.
Upcoming changes
Looking ahead to next year and the legislation he wants to see, Wegkamp said the big thing he’s looking to do is to get rid of the mandatory five-year examination period for captives as laid down by state law.
“I want to change that to calling examinations as needed, rather than have the five-year period where we have to either call them or give them an audit-in-lieu review. Our history in Utah has shown that for the majority of our captives we don’t see the need to do a full-blown examination on them—we can do an audit-in-lieu review,” he said.
“So I’m going to move to get rid of the five-year requirement and just call those examinations as we see the need arise.”
For Utah’s larger, more complex captive insurance structures, there will still need to be some kind of a five-year period, but there will be some more leeway built into the examination system, with some being given a little less or a little more time, depending on their circumstances.
Wegkamp has targeted the early 2024 legislative session, starting around mid-February and going through March, for this proposed change.
In the meantime, Wegkamp continues to be vigilant for all the updates and trends that the captives market will be facing—as Utah continues to push ahead of its neighbours on the western half of the US.
Travis Wegkamp is director of captive insurance at Utah Insurance Department. The department can be contacted at: captive@utah.gov
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