Back in 2007 a captive bill was initiated by the General Assembly in Ohio. The insurance department, along with various other interested parties were involved in reviewing and editing the draft legislation...
Firstly, could you explain the genesis of Ohio’s captive industry?
Back in 2007 a captive bill was initiated by the General Assembly in Ohio. The insurance department, along with various other interested parties were involved in reviewing and editing the draft legislation. Immediately following an interested parties meeting, the bill just died. Then, in 2011, we had a new governor elected who was running on the campaign of transforming Ohio into a competitive business environment by creating businesses in Ohio, retaining them and creating jobs.
His lieutenant governor was appointed the Ohio insurance commissioner. Shortly thereafter, I wrote a letter to her encouraging the Ohio Department of Insurance to reconsider the benefits of competitive captive insurance company legislation. I stated that not enacting captive legislation seems to be inconsistent with the governor’s message.
That correspondence led to conversations with the insurance committee within the general assembly and with the insurance department. As a result, we drafted a captive bill that, in its preliminary form, would permit pure captives, association captives and protected cell captives. Through various interested parties meetings and negotiations with the insurance industry in Ohio, the captive bill ultimately did not allow for association captives. The captive bills (the original bill was split into two) authorise pure captives, protected cell captives and special purpose financial captives—the latter one being only for life insurance companies.
The great thing in this process was that the department took ownership of getting the bills through the legislature and worked with all the parties to ensure there were no surprises along the way. There was no doubt that the department really embraced the captive legislation and took ownership of it. That was good news for those of us who were interested in getting these bills passed.
The Ohio General Assembly unanimously adopted the captive bills in June 2013 and the Ohio Senate unanimously approved them in May 2014. The Ohio House immediately and unanimously adopted the substitute captive bills in June 2014. The Ohio governor signed the legislation on 17 June and the legislation becomes effective 90 days after the governor signs the bill.
You say that the bill died between 2006 and 2007—what killed it?
I think some insurance companies did not like the idea of a captive bill in Ohio and they had considerable influence in the 2006-2007 process. However, because the process had been going on for some time, some of us were convinced that the bill was going to go to the legislature. There are many interested people very excited about having the opportunity of looking at captive insurance in Ohio, to either redomesticate their captive back to Ohio, or to set up an Ohio captive.
So, in your experience, do you see people as being receptive to Ohio captives?
I spent 20 years in house as legal counsel for a very large Ohio domiciled insurance company. In that capacity, I was the lead counsel responsible for buying and selling a large number of insurance companies during my time as well as being responsible for the corporate governance of insurers. When I went into private practice 13 years ago, I started getting involved with medical malpractice captive insurers down in the Cayman Islands and forming risk protection groups in Vermont. I found that a lot of folks were receiving misinformation on captives.
A lot of people knew enough about them to be dangerous. But, I found a lot of prospects receiving bad advice about setting up a captive for a single employer and being told they could deduct the premium as a business expense. So I spent a lot of time re-educating folks about the benefits and risks of captives, including discussing the issues to be faced in establishing a captive.
For the past several years, I’ve been trying to address as what I saw as an interest in captives here in Ohio. I thought that if I could help with Ohio captive legislation, perhaps Ohio businesses would not have to go to the Cayman Islands, Vermont, Kentucky, Utah, or Montana, to set up their captives. Instead, they could have the convenience of doing the captive from their own offices.
Have you seen any apprehension or suspicion of captives from people you have spoken with in the state?
In most cases certain folks have heard about captives and in some cases, the information they have heard is incorrect. The more we can educate means a greater opportunity to form more captives in Ohio and that is one of the goals of the Ohio Captive Insurance Association—to educate folks about the regulatory environment in Ohio. With that information, which they have not had because we haven’t had a bill, I think people will be in a much better position to make an informed decision as to whether they should form a captive and whether Ohio is the right domicile.
How are things looking for the future of Ohio’s captive industry?
Right now, the next step is that the Ohio Department of Insurance will draft regulations. Because the bill will not be effective for about 80 days from now, no captive can even be applied for, until about Q4 of this year. So, we’re hoping to see the Ohio Department of Insurance is getting organised and prepared for that first application when it comes in the door. That will be important because captive prospects will want to see what type of regulatory environment Ohio will be—is it going to be user friendly, efficient, fast, and flexible, to allow these captives to do what they may have done in other jurisdictions? Or, will the discretion authorised to the insurance commissioner not be used to permit flexibility in meeting captive owners’ needs?
Do you think that the state will eventually attract nationwide as well as domestic clients?
I’ve had a hospital system with the captives, say: “I like where I’m at right now, so unless Ohio has a much better regulatory environment or scheme in place, why would I want to move my captive?” Whereas others are tired of going to Vermont, or the Caymans, and are ready to do their business here in Ohio. Perhaps there are political reasons for having captives in the state as opposed to having it out of state.
I don’t know if the first wave of Ohio captives will be a tsunami or a ripple. I would suspect the first applicants will be a couple of Ohio businesses, which do not have a captive, but are interested in setting up a pure captive. Or it could be one or two Ohio businesses that have a foreign captive and want to redomicile in Ohio.
Immediately after the captive bills were signed by the governor, an interested person asked me “when Ohio would permit for association captives?” I said, “you don’t want to go there because three years ago it was taken out”. While there may be issues with the current captive legislation, Ohio needs to get its feet wet first.
I recommended to this person that they should give it a year to see what type of reception is given to captives by business owners in Ohio, with respect to the bill, and the regulatory environment and then if changes need to be made.
What is the endgame for the Ohio Captive Insurance Association?
I put on a captive seminar for some Ohio businesses in May— a ‘captives 101’. The point of that seminar was to let attendees know that the bills (at that time) were still pending and to explain what the bills would look like. Some of attendees have contacted me and asked to let them know when they will be able to set up a captive. I think people may be standing close to the effective date of the bills once applications will be accepted. That’s how people are going to getting their feet wet. If people are interested enough in this legislation, they’re going to push ahead and submit an application to be a captive insurance company in Ohio. That will set the precedent.
