Utah Insurance Department
The future for captives looks fantastic—not only in Utah but around the world, according to the insurance department’s David Snowball
Was 2015 a good year for captive insurance in Utah?
It is always a good year in Utah for captive insurance companies. Captives are good for business and Utah endeavours to provide the best regulation possible to help captives meet the goals of the captive owner. If we accomplish that, it is a good year for captives in Utah.
Many of the captives in Utah are in the enterprise risk captive bracket and 2015 was a difficult year for some of them as they contemplated how the US Internal Revenue Service (IRS) stance on captives will develop. There have been some dissolutions as businesses decided not to take the risk of IRS scrutiny, or the parent company business plan changed, yet there are many new formations. Utah has had a net increase of 45 captives for the year. But this is smaller than the 26 percent year-over-year increases that we have had over the last eight years.
The industry has become more careful and spent more time doing analysis, which is a very good thing. Captives are good for business and we as an industry need to be prudent in how we meet the needs of the future, considering the regulatory environment that exists today. The federal government and the National Association of Insurance Commissioners are flexing more muscle in the captive industry.
Why did Utah recently open an online application process for prospective captive owners?
The captive application is a part of the ongoing process of being green and improving processes for the industry working with Utah. Four years ago it was determined that the captive division would go green.
We created a tracking system for the work being done for all captives and then started scanning all of the files for electronic storage. We found this was not only a space saver but far more efficient for finding files. It also improved our processes.
Next, we started a project for online annual reporting. Our annual statement and statement of economic benefit were created in an online format, which is easy to use and efficient for storage and transmission of documents.
The captive managers and others using the system appreciated the ease of use, and that it will store the information for comparison. Along with the advantages to the industry, we have found that it has also created some efficiencies for the department.
The most recent online process that has been developed is the captive application. As with any new process we have had to work out a few kinks, but it appears to be working very well.
Captive mangers have indicated their appreciation for the process and the ease of use. There is always an adjustment period in trying a different process, but the format is very similar to the prior form and thus easy to follow and use.
We have also added an important side benefit. A secure portal has been added with the application, and separately for the submission of documents. It has always been problematic to transmit some documents securely and in today’s world of cyber attacks, this is an excellent addition.
The secure portal may be used for any documents, including transmitting annual audits, business plan changes, financial statements and net worth statements.
Have you seen any captive owners use the online application so far?
There have been several applications submitted through the online process and so far it has worked very well. There were a couple of minor cosmetic changes but the system has worked. The problems that have come up are in incomplete applications, but the system does allow for fixing and resubmission, so it has not been a problem.
In addition to online applications, are there any other plans in place for 2016?
This will be a year of finalising some of the changes that we wanted but did not have time to get implemented for other projects. These changes for 2016 will have little effect on anyone except those within the captive division and the state. We are creating reports for department use, accumulation of internal statistics, and organisation of records for more proficiency so we can get information more quickly to respond to the needs of the individual captives.
How are things looking for the future of captive insurance in Utah?
We in Utah have great expectations for the captive industry. We have seen tremendous growth in the past several years and anticipate that the future will be good. When talking with captive managers and others in the industry, we see a slowing down of new formations, due to the IRS scrutiny of the captive industry, which is mostly targeted at the small captives using the 831(b) election. What the IRS is doing is an interesting phenomenon and it runs in cycles as to what it attacks. What captives have done is not inappropriate or illegal, but the fact that the IRS is looking more closely has got some businesses taking more time and researching whether it really works for them, and that is a good thing.
Utah did not have as many new captive formations in 2015 as we have had in the last few years, but the captive industry is still a growing, vibrant market and still has plenty of room for growth for Utah and other domiciles. The slowing down is not negative because it allows everyone some time to re-evaluate processes and be more prepared for what is to come. The fact that the IRS is putting the industry under additional scrutiny isn’t all bad because it helps us to improve our processes and be better prepared for the future. Captives are not made for taxes, but taxes have been made to assist small insurance companies to grow and build more business. The future for captives looks fantastic—not only in Utah but around the world.
