Travis Wegkamp of Utah Insurance Department explains that the state is seeing larger companies move to the state with more robust risk management programmes, higher premium volume, and a long-term outlook for the use of their captive
How did 2019 playout for Utah in terms of captive insurance?
It was another strong year for the captive insurance industry in Utah. We had a total of 42 new formations, 11 of which were cell captives, bringing our total number of risk-bearing entities to 435.
While this is a net decrease of six for the year compared to the previous year-end total, the captives that are replacing the closures are larger companies with more robust risk management programmes, higher premium volume, and a long-term outlook for the use of their captive. This is a trend we’re very pleased with.
What trends are you currently seeing in the Utah captive insurance market?
Workers’ compensation remains popular; while Utah captives cannot write direct workers’ compensation we do allow them to provide deductible reinsurance coverage and/or reinsure a layer of an affiliate’s self-insured retention (SIR). Tenet liability coverages for property management companies have seen an uptick here, as well as continued interest in cyber liability and voluntary employee benefit programmes. It would also seem there is a recent revival in the interest of cannabis-related captives.
Utah does allow for medical use in the state, and if presented with a well-designed programme I would be open to considering it and discussing it’s viability here with the commissioner.
Are there any plans to update captive legislation this year?
We are introducing one change for the current 2020 legislative session that I believe will have a strong impact on Utah’s attractiveness as a captive domicile. The change is a single additional line of language that will allow our captives to reinsure pure third-party risk with prior approval of the commissioner. This has the two-pronged effect of also allowing our pooling captives to share and reinsure risk without the need to meet the controlled unaffiliated business (CUB) test. For a captive to insure directly though, the insured would still need to meet the parent, affiliate or CUB requirement.
What are the biggest challenges for US captives right now?
Continued interest and scrutiny from the Internal Revenue Service (IRS) means captives need to take the necessary care to operate primarily as an insurance company and to formulate programmes with adequate risk distribution. The unfortunate challenge and difficulty with this is the IRS’ lack of guidance on what constitutes adequate risk distribution.
What are your predictions for the market this year?
It would appear the traditional insurance market is showing signs of hardening, as such, I think the interest in captives will grow and remain strong for 2020, and I fully expect Utah to continue to be a player and a beneficiary of this interest.
Utah has a strong, stable, and diverse economy with a business-friendly attitude of cooperation and collaboration that our captives industry partners value and appreciate. We invite all others to discover this unique state and it’s many opportunities as well.
