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Interview
Latest news
Dennis Harwick
CICA
As the sun sets on his tenure as CICA president, Dennis Harwick explains why this adolescent industry is wiser than its years

What is the main focus of this year’s conference? What sessions are you most looking forward to?

I would love to say that it is my going away party, but I guess that isn’t the main focus.

When planning the Captive Insurance Companies Association’s (CICA) 2017 International Conference, which takes place between 12 and 14 March, we arrived at the defying disruption theme, and since then I have been fascinated at how much discussion there has been around this topic in the industry.

It has worked very well for us to focus on this theme. We have asked speakers to look at their individual sessions and to identify how disruption might be a factor for them.

A key feature of this year’s conference is talking about the next generation of the captive industry. I think our keynote speaker is going to be interesting, when we told Lindsey Pollak about our defying disruption theme, she couldn’t believe it, as it was perfect for her.

Pollak is recognised as an expert on the millennial generation in the workplace and how members of all generations can thrive in today’s multigenerational work environment. For someone like me who is at the tail end of his career, particularly in the association world, it will be fascinating to hear Pollak discuss the impact of generational differences.

If you look through the agenda, you will see the disruption topic pop up again and again. We will have a session on Tuesday morning on finding and attracting the next captive workforce, which is an issue that has been emerging over recent years.

The session will explore the captive industry’s need for new employees and survey current strategies being used to find and attract newcomers. The top of the session will review the results of a survey of captive leaders done specifically for this presentation, and panellists will explain what their firms are doing to address the impending ‘expertise shortage’.

I have spoken on this ‘next generation’ topic a couple of times, and I show a chart that highlights that 25 percent of the insurance industry workforce is going to retire in the next five years.

The projected workforce to fill that gap simply isn’t that big, but I’m an optimist. When starting our careers, none of us thought that we would end up in the captive insurance industry. We all got sucked into it laterally and I’m highly optimistic that will happen for the next generation. Although you can’t predict where they will come from, they will, because there is an opening and something interesting about captives has caught their eye.

We will also be talking about the issues of disruptive technology, disruptive events in the claims process, and defying disruption by optimising captive lines. If you ask for our main focus, it will be identifying and addressing whatever disruptive changes are coming the industry’s way.

Tax has been a big topic of conversation over the last 12 months. What are the main concerns around tax for the captive insurance industry in 2017? How will it be covered at the conference?

We always have one big taxation session, which focuses on recent developments in federal and state tax issues. It normally occurs at the end of the CICA event and is the most widely attended session. This panel will be led by panellists Bruce Wright, a partner at Sutherland Asbill & Brennan; Tom Jones, partner at McDermott Will & Emery; and Chaz Lavelle, an attorney at Bingham Greenebaum Doll.

There are also three other tax sessions on this year’s agenda. On Monday afternoon, there is a session on the definition of a business risk and an insurance risk.

This session will explore the position taken by the Internal Revenue Service (IRS) in many captive insurance company tax cases that a business/investment risk is not an insurance risk.

A decade ago, the IRS decided that if something was predictable and it was going to happen, then it wasn’t an insurance risk, but what about life insurance? Everyone is going to die, as far as I know.

Secondly there is a session on Tuesday morning that takes a different approach to the tax conversation. This session provides a foundational discussion of tax items that may affect a captive arrangement, including recent or proposed changes to tax law that may help or hurt the captive’s tax status, as well as provide insights and updates on pending items that could have a future impact.

There is also a regulatory interaction panel giving the small-captive perspective on the evolving state and federal climate on Tuesday morning. Panellists will discuss the role of state and federal regulators regarding small captives that make an annual election under Section 831(b) of the Internal Revenue Code, specifically in the wake of recent IRS scrutiny.

The discussion includes how the differing perspectives of regulators affect small captives and how federal regulators view both small captives and state regulation. Panellists will also discuss how new federal policy has affected the role of state insurance regulation, as well as the captive industry.

The big issue is the changes in the Protecting Americans from Tax Hikes Act, and the increase in the amount that’s deductible, but with the additional restrictions around what you’re doing with it. There are also the issues around Notice 2016-66, which has now been deferred until 1 May.

There has been a great division within the small-captive sector and many in the industry are questioning how to respond, what it means, and what we need to do. It is a very hot topic and it has split people within the sector. It is going to be a dramatic year for them.

The industry is also expecting a decision in the Avrahami case at some point, which will cause some headache, but may also provide some guidance and clarification.

It really is going to be an interesting year for people in the small-captives sector. They have expansion, because of the increase in premium tax from $1.2 million to $2.2 million, but also the reporting requirements for the IRS’s Notice 2016-66. It is going to be a wild ride.

What are the other pressing issues you think the captive industry should be aware of? And what is CICA doing to help educate captive professionals?

You can hardly predict what is going to happen in this industry. If you look at what has come on the scene, particularly tax wise, this year, you have people whose firms follow this type of thing daily and read the federal register every day, and others who follow the Organisation for Economic Co-operation and Development (OECD), yet every time these things seem to fall out the sky.

I do think this year—at least from an IRS perspective—is going to be very active, especially around the small-captive sector.

Our conferences are a big opportunity to educate the industry on these problems. We also host a webinar series that we continue to roll out this year.

One of the things I have learned in the 35 years of association work is that people’s busy calendars are the biggest challenge to educational programming, so we pick sessions from the conference that scored well and had a big attendance, and produce them in the following months as webinars.

We inevitably see 100 people attend the webinar who weren’t able to go to the conference. We also have the ability, if a hot topic comes up, to do a webinar on that as well.

As you leave your role as president of CICA, what are your thoughts on the industry? Do you think this is the best it has been?

I went back and started reading minutes of the board meetings from three or four years before I became president at CICA. When you’re at the early adolescence of the industry there are some great friendships and bonds that go with that experience.

Some of the names that pop up are people such as Hugh Rosenbaum, who has been around since the Earth cooled. Mike Mead, Mike Lusk and Ian Kilpatrick are people who have been active for the past 20 or 30 years.

We now move into what I would call the late adolescence, where you have this process for a still young industry, but it’s maturing. It means there are a lot more people coming into the captive industry who don’t share many of those experiences of the early years.

Now our higher profile brings more scrutiny with some popular names such as the IRS, the National Association of Insurance Commissioners and the OECD. Because we are maturing, we will face even more scrutiny in the future.

My friend Ian Kilpatrick, who spent most of his career in the Cayman Islands, was once at a board meeting where he said he had read the obituary of the captive industry four or five times during his career, yet we have managed to make it through each one of these challenges.

Now the industry is well established, it probably no longer faces an existential threat, and that’s a good thing. There will be increased scrutiny in the future, and I don’t want to be too casual about it, but we will survive it. Such scrutiny comes with the territory and our maturing industry.

At CICA, we have always advocated a ‘do them (captives) right or don’t do them at all’ philosophy. The opportunities that occur in the captive industry normally arise from insurance challenges where either it is difficult to find coverage, or the pricing is extraordinarily high.

In the old days, people used to say that captives will only be around during the hard market. We have had a soft insurance market for years now and, guess what, captives are still here and they are still growing because, strategically, they make sense.

As I ride off into the sunset, I’m optimistic that captives will continue to grow while solving insurance and risk management problems. This is what makes captives work and I think they will be around for a long time.

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