Vermont Captive Insurance Association
Despite securing its thousandth captive and retaining its position at the forefront of the US captive industry, Richard Smith explains why Vermont is determined to keep its eye on the ball
Firstly, what is the overarching theme of this year’s conference and what can we expect from the sessions?
This year we at the Vermont Captive Insurance Association (VCIA) are going for a baseball theme—major league captive education. Every year we try to increase the quantity and quality of the educational sessions in particular and this year is no different. It is a great mix of the types of educational sessions on offer, with some focused on newcomers to the captive industry and a number of sessions on board governance, as well as more advanced taxation and accounting principles-based sessions.
We try to make sure that we have a fair number of captive owners present who can talk about their own specific experiences. The other captive owners and service providers seem to enjoy hearing it straight form the owners themselves, in terms of what they are seeing and doing in the industry.
Where is the focus for Vermont’s regulators, and what impact have you seen from the changes made in the state this year?
From our perspective there are two regulatory centres. Montpelier, Vermont, is where our state-based system promulgates its rules and regulations, and there is also a lot of focus on what is happening down in Washington DC. This could be actions from the National Association of Insurance Commissioners, laws that are being passed with the specific intention to change insurance regulations or any other laws that could unintentionally impact our industry.
In Vermont, we made a number of technical changes to our captive insurance laws, as we do every year. We work both with the regulators and the industry to see if they have any broad or specific ideas regarding how we can streamline regulations in Vermont.
The big thing for us this year was the creation of the dormant captive status. This means that Vermont captives that are not currently running any business through them can now become dormant, which allows them to report their inactivity and therefore eliminate the tax they have to pay and lesson reporting and oversight. We hope that if these dormant captives decide in the future that they want to put business back through, they continue to do so in Vermont. This is a great tool to keep captives here that are looking to reboot their business, as there is a lot of competition out there.
Despite competition from other states, Vermont still seems to be far ahead with the licensing of its thousandth captive—is there a tendency for the state to take its foot off the gas?
In Vermont, we never take the industry for granted, so every year we look at our regulations and laws to make sure that they are as up to date as possible. We try and work hard to present a very solid regulatory climate for the industry. I would not say that the number of states with new captive laws has altered that perspective. Even when I first came into the industry and there were four or five very active states, it was still good, healthy competition.
It is something of a double-edged sword, however. It keeps us on our toes and gives the industry more choice, but my concern is that the number of states that have captive laws far outnumbers regulators that have experience of the industry. This means that could potentially be states that don’t know what they are doing, with the power to license captives that should not have been licensed. This could create a black eye for the entire industry.
Historically, you see states that have passed captive laws and were very energetic to build their industry. Whether new people came in at state level or goals were set out and never fully realised in terms of jobs created or revenues to the state, these states were forced to backtrack a little bit. My guess is that, even with this proliferation of states that have captive licensing laws, you are still going to see three or four states, including Vermont, that are in the lead in terms of captives that are domiciled.
Has the feedback from last year’s conference been beneficial in planning this one?
We start planning for our next conference literally three weeks after the previous conference ends. We bring together a conference committee that is made up of industry service providers, owners and so forth and examine what went well and what changes need to be made. In 2013, there were a couple of new things that we are expanding on this year. We started using electronic polling in our sessions to make the education sessions more interactive. We got a lot of great feedback about that so we are going to do more of that this year.
Like a lot of conferences and organisations, we are shifting the information and feedback from paper to smartphones and tablets so people are able to download the materials from the conference app, get updates on what is happening and get involved in the polling all from their devices.
We are also bringing in more of the educational sessions this year than ever before and we are on track to exceed the 1100 delegates that attended in 2013.
We provide one of the largest forums for the captive industry in the world so it is a great opportunity, not only to learn at the sessions, but to benefit from the networking and one-on-one interaction with peers, as well as seeing what is new in the industry. I have not seen the numbers but our hope is that we see many captive owners in attendance again—as they draw the rest of the industry here.
With global trends like cyber risk, catastrophe bonds and insurance-linked securities making the news, what are Vermont’s areas of interest?
Cyber risk is one of the newer areas that the captive industry is focused on. We actually conducted a webinar about a month ago on the subject and one of our keynote speakers at VCIA is Theresa Payton, who is a cyber risk specialist and was chief information officer at the White House under the Bush administration. It is definitely high on the agenda of new risks that are being looked at from the captive perspective.
Insurance linked securities are also interesting—although I have not seen any direct connection at this point with in the captive industry—they are mostly involved with the larger catastrophe bond and reinsurance deals.
I think it is probably having an impact on the broader insurance industry, which obviously affects the captive industry as a consequence. It definitely worth watching for us going forward.
When people ask whether we are seeing any major trends in types of companies and types of coverage, it is hard to answer. There is clearly interest in new areas such as cyber risk but our growth area is still in areas such as construction companies that are looking at their property and casualty exposures.
We also get a great deal of companies looking at medical malpractice insurance, which is also an area of good growth. We get financial sectors looking at varieties of different ways to make the most of their captives. They are so flexible and such important tools that it really runs the gamut in terms of who is using them and for what purposes.
