Lori Gorman, newly-appointed deputy commissioner responsible for NCDOI’s captive insurance companies division, and Jackie Obusek, senior deputy commissioner with a senior leadership role over captive regulation, talk to Rebecca Delaney about the department’s development agenda and regulatory environment amid favourable market conditions
How do you assess current market conditions for the captive industry in North Carolina? What are the most significant trends in the market?
The market conditions for North Carolina’s captive industry in 2022 are favourable. The continuing hard commercial market, emerging risks and COVID-19 pandemic are some of the factors that are leading more business owners to form captive insurers for their risk management needs. In addition, other business owners with existing captives are finding new uses for those captives. With the hard commercial market creating a higher cost of insurance, or an inability for an insured to find the desired adequate coverage, the use of captive insurance offers a way to address business risk through gap coverage, higher deductible reimbursement coverage, coverage for risks that cannot be insured through the commercial market, coverage for certain layers of risk, or full replacement of the commercial insurance at a reasonable cost.
Business owners seeking to address emerging risks, as well as risks arising from the COVID-19 pandemic and future unforeseen situations, are also understanding the benefits of utilising captive insurers. This continued growth of new and existing captives is leading to increased opportunities for service providers such as captive managers, auditors, actuaries, investment managers, attorneys, claims managers and others ancillary service providers. In addition, participation in cells and series captive structures by business owners continues to be on the rise. For the past few years, the growth of cells and series in North Carolina has been significant, and this trend is expected to continue in 2022. Since the inception of the North Carolina captive programme, the state has approved more than 835 cells or series. In 2021 alone, the number of new cells or series was more than 150.
How is the regulatory environment of North Carolina beneficial for captive owners? How is this reflected in the operations of the North Carolina Department of Insurance?
North Carolina, through the leadership of Commissioner Mike Causey, provides a business-friendly yet appropriate regulatory environment for captive owners and their service providers. The state’s in-house regulatory team operates under the commissioner’s mission of providing outstanding customer service. This means that our staff are responsive, accessible, and available.
Captive insurer submissions are reviewed and acted upon in a timely manner. If issues are noted during the review of a submission, the NCDOI communicates with the captive insurer making the submission to determine how those issues may be addressed to the satisfaction of the NCDOI and the captive insurer.
North Carolina has a modern captive law that provides discretion for the commissioner to regulate each captive insurer based on that insurer’s unique risk profile. This law enables the formation and operation of all types and structures of captive insurers. Additionally, the law is written in a way that provides for flexibility to adapt to changes and developments that may take place in North Carolina’s captive industry in the future. The state provides for a low regulatory cost in the formation and operation of a North Carolina captive insurer. The NCDOI collects no fees (with one exception related to special purpose financial captives); this means no licence application fee, renewal licence fee, or business plan change fee. The only regulatory costs are premium taxes paid annually with a tax rate competitive with other domiciles. Nominal fees are paid to the North Carolina Secretary of State’s office for the processing of corporate documents and a short annual report filed with the agency.
Since the regulation of captive insurers is conducted by in-house professional staff of the NCDOI, which includes financial analysts, examiners and actuaries, there are no outsourcing fees charged to the captive insurers. The NCDOI’s regulatory responsibilities are fulfilled by the internal staff of the NCDOI.
What are the most significant challenges facing the captive industry, in North Carolina and as a whole?
Like many industries in this state as well as other domiciles, the recruitment and retention of personnel is one of the most significant challenges. The insurance industry, prior to the COVID-19 pandemic, was experiencing challenges in the hiring of personnel. Since that time, this has become more challenging. The industry will need to continue to demonstrate to the workforce that a career in insurance can be interesting and challenging.
What emerging risks have been identified in the pipeline for the captive industry in 2022?
After the impact of the COVID-19 pandemic, it is anticipated that captives will provide coverage to their insureds to address the impact of these types of events, including coverage such as business interruptions. Other risks that captives may be used to address are the risk of losing valuable employees and the inability to hire employees, supply chain disruption, cyber security risks, corporate governance risk management (including the risks impacting directors’ and officers’) and the risk that new innovations will disrupt or make a business product or service obsolete.
What will be top of NCDOI’s captive development agenda throughout 2022?
During 2021, the NCDOI, along with the support of the North Carolina Captive Insurance Association (NCCIA), proposed legislation to make technical and clarifying changes to the captive laws. Senate Bill 347 included provisions to provide a premium tax incentive to those captive insurers that redomesticate to North Carolina from another jurisdiction within the next year or so. Although that legislation has not yet made it through the entire legislative process, it has progressed through most Senate and House committees and has done so with unanimous approval so far. The NCDOI and NCCIA will continue in 2022, during the short legislative session, to work to get this bill enacted into law. Assuming the bill is enacted in 2022, the NCDOI, along with the NCCIA, will partner to educate business owners about the redomestication incentive in the law and discuss the benefits of forming a captive insurer in North Carolina. Through this initiative, we hope to not only bring the foreign captives of North Carolina businesses back to the state, but we also hope these benefits will entice others to bring their captives to the state.
NCDOI recently underwent a leadership change in the captives division. What are your first impressions of working in the captive industry?
It is an exciting time to be joining the captive industry in North Carolina! As new challenges in insurance solutions emerge, it is interesting to see how innovative alternatives to the traditional insurance market can be designed and utilised to meet these risk management needs. Together with Commissioner Causey, we are enthusiastic about the new legislation being enacted to provide for a temporary premium tax waiver as an incentive for captives to redomesticate to our state. We are both looking forward to partnering with leading industry professionals and continuing North Carolina’s strong commitment to its captive programme.
What impact, if any, will the personnel change have on NCDOI’s captive regulatory programme?
Debbie Walker is greatly missed by the NCDOI since her retirement. Under her leadership, North Carolina has become a leading captive domicile by providing the support of knowledgeable and accessible insurance professionals to address the industry’s insurance needs. North Carolina’s captive insurance programme will continue to maintain our highly experienced in-house regulatory team, and we will continue our focus on delivering outstanding customer service with a business-friendly regulatory approach.
We believe that this, combined with the flexibility of the North Carolina Captive Insurance Act, will remain important reasons to choose North Carolina when establishing a captive insurer.
