Where did the idea come from to set up a student-run captive insurance company?
I was a risk management and insurance major in college and went on to have a whole career in risk management, which was fantastic and exposed me to all the areas of our industry. One of the best experiences of my career was managing a Bermuda captive. I also helped with the implementation of a second captive in South Carolina. For me, the opportunity to work with an insurance company on that scale was great.
When I started out, some of the accounting and investment classes didn’t initially register with me because I lacked context. Working on captives exposed me to everything it takes to run and operate an insurance company, and how it all interfaces with a risk management programme.
After my career as a risk manager, I started the risk management and insurance degree programme at Butler University. One of the attractions of Butler was the full experience of learning. The students do two internships for academic credit, which is unique in the US. We have finance students at the university managing $2 million and making real investments with real risks, and I thought to myself, why can’t we do this with a real captive?
What processes did students go through to set up the captive?
I have done many feasibility studies throughout my career, so with my guidance and that of another former risk manager, Kevin Thompson, who used to work at Eli Lilly, we put together the captive experience for the students.
Last year, our students carried out a full captive feasibility study. We had two teams and assigned four domestic domiciles and two international domiciles to each. They completed a good analysis on capitalisation, surplus ratios, liquidity requirements, and all of these different things. I then asked students to contact all of the regulators, as I wanted to see who reached back to them, who treated them like adults, and who treated them like real business partners and not just students.
We heard back from Vermont and Bermuda within four hours, but did not hear from a single other domicile. We were actually looking at other domiciles that we wanted to go to but because of their lack of response, it showed us they were not going to be the kind of innovative regulator we wanted to work with.
What service providers have you used in the process?
First, we want to thank MJ Insurance here in Indianapolis for financing this idea and getting the whole ball rolling. Once we began, we did the entire feasibility study ourselves, so where other firms might spend $30,000 to $50,000 on that, we didn’t spend a dime. As a part of that process, we did a full-blown request for proposals for a captive manager. We spoke to Marsh, Strategic Risk Solutions, Willis and Aon. They were all fantastic and supportive, and each had a unique offering in their own way, but in the end we chose Aon.
We thought Aon had the most innovative approach. Aon was willing to not only see this as a transaction of managing captives, but also add an educational component to this so that we can train students on the processes of how to run and operate a captive, as well as get them engaged with all of the background material.
We appointed Aon as our captive manager and then Kevin and I travelled to Bermuda and met with various law firms. We also met with banks and auditors such as HSBC, which we decided to select as our on-island banking partner. We chose KPMG to be our auditing firm.
What steered you towards choosing Bermuda as the captive domicile?
A couple of advantages stood out. Top of the list was Bermuda’s concentration of reinsurers and its position as a global centre for insurance. I know that some get the sense that the US is in an isolationist mood right now, but we are not training students for how some hope the world may be, we are training them for the world that actually exists, and we’re a global economy. I wanted to provide students with a global experience and access to an international market.
The second advantage was Akilah Wilson, assistant director of licensing at the Bermuda Monetary Authority, and knowing that we were working with a regulator with a risk management degree from Temple University.
There are 400,000 jobs in the insurance industry that need to be filled, but the supply side is largely ignored. There are 1,900 accounting programmes in the US, there are 950 finance programmes, and there are 82 insurance risk programmes. To have so few graduates relative to demand is a heck of a supply chain risk for an industry that prides itself on being stewards of risk for the entire economy. In fact, I sometimes find that job descriptions are too basic for what my students can do. By working with someone like Wilson, who graduated from the fantastic programme at Temple University, we know she understands the power of this educational opportunity.
Thirdly, the Bermuda Business Development Agency went gangbusters to help us build relationships on the island, as we want to take on Bermudians at our undergraduate programme at Butler and we want students to intern and work in Bermuda, and vice versa. We are really trying to just bring those two countries together and provide opportunities for everybody.
When will the MJ Student-Run Insurance Company officially open for business and what is it going to insure?
We received approval on 7 April from the Bermuda Monetary Authority. We are licensed subject to a few little follow-up items, but apart from that, we are good to go. We will be accepting business as of 1 August. We are providing the first $150,000 on our fine arts, musical instruments and theatre props, and we are insuring our live mascot Butler Blue III, our very famous mascot for basketball, as well as our bomb-sniffing dog, Marcus.
We are also insuring our student-run businesses for the first $50,000 of commercial general liability exposure up to an aggregate of $100,000. We are insuring our planetarium and telescope.
It is amazing. We are an insurance class doing a loss control visit for the planetarium and identifying that for our telescope, the risk is water, so currently the dome closes whenever there is perspiration in the air, unless the power goes out. We have been able to insure that risk and for $2,000 put in a redundant power generator on the planetarium dome, so that it will never stay open in rain.
By setting up this captive, we were also able to identify that we are actually under-insured by $1 million and for a $2,000 investment, we could protect the oldest and largest telescope in the state of Indiana because our students identified those kind of recommendations.
With a quarter of the insurance workforce set to retire by 2018, do you think other universities will consider doing something similar in the future?
We are going to continue to run and operate our captive, so this will be an ongoing project. We will be doing renewals for the university every year and will continue to write and underwrite our exposures, and reinvest the captive’s profits into loss control projects.
In addition, we want to structure a reinsurance programme, but ultimately in our fourth year of operation we are going to do another feasibility study to become a Class 2 captive and move to third-party business.
The industry is always looking for ways to support the talent crisis, but I see a lot of insurance companies trying to recreate the wheel on training and recruiting millennials.
What they really need to understand is the undergraduate programmes out there are doing a fantastic job. The industry needs to support more insurance and risk management degrees, and more insurance classes and programmes like ours. Our hope is that our student-run captive will become the model for risk and insurance programmes and that’s exactly why we wanted to do it.