North Carolina Department of Insurance
Debbie Walker discusses developments in North Carolina’s captive industry, challenges around COVID-19 and the priorities of the department of insurance for the rest of 2020
What developments do you see taking place in the NC captive insurance industry this year?
This year has turned out to be a very unusual year for everyone due to the impact of COVID-19 and the experience of the captive insurance industry is no exception. We expect to see some captive insurers managing and settling claims for their insureds due to losses experienced from business interruptions caused by COVID-19. Some captive managers have discussed with us the uptick in claims experienced by certain captive insurers as a result of the pandemic’s impact.
One positive outcome from this extremely negative COVID-19 experience is the possibility that business owners will further consider the benefits available through the utilisation of captive insurance companies. As business owners further evaluate the risks they face that are not covered by their commercial policies or find that insurance to address those risks is too expensive in the marketplace, we hope they will give more thought to using captive insurers. With the tightening of the commercial markets, this is a great opportunity for growth in the captive insurance industry.
As some of the insured businesses of captive insurers face difficult financial times, we anticipate more captive insurers may request approval to issue dividends or loans to provide liquidity to those businesses during this difficult time. The North Carolina Department of Insurance (NCDOI) will work with those desiring to enter into those transactions, reviewing each situation on a case-by-case basis, to determine whether the captive insurer has the financial ability to enter into those transactions.
In the North Carolina captive insurance industry, we expect to see new formations, and at the same time, we expect there will be closures. So far this year, the NCDOI has licensed eight new captive insurers and approved five new protected cell business plans. There are three captive insurer license applications and seven protected cell/series business plans under our review currently. The newly licensed captive insurers are varied in their writings from tenant liability insurance to general and professional liability to other property and casualty lines of business. Two of the new captive insurers are providing reinsurance for auto liability and other property and casualty coverages.
What challenges do you see in the industry at this time?
One primary challenge in the industry at this time is, of course, developments caused by COVID-19. Some captive insurers are reviewing and settling claims for losses due to the pandemic. Unlike the traditional insurance marketplace, in some cases, insurance policies issued by some captive insurers, including business interruption policies, are providing coverage for losses of the insureds and giving them some degree of relief from the impact of COVID-19. While the captive insurers are paying benefits under these insurance policies, they are simultaneously managing their liquidity needs in order to pay those claims. The impact of COVID-19 on their investment portfolio, resulting in a loss of value of certain investments, presents additional liquidity challenges for certain insurers.
How has COVID-19 impacted the NCDOI’s regulation of captive insurers?
The impact of COVID-19 on the financial health of North Carolina’s captive insurance companies is of utmost importance to the NCDOI captive regulatory team. Upon licensing, each captive insurer is assigned a first and second level analyst responsible for the ongoing regulation of that insurer. Over the coming months, the analysts will be assessing the impact of COVID-19 on the licensed insurers and will be working with any insurers that are experiencing financial and compliance issues to bring those issues to resolution.
COVID-19 and the stay-at-home orders in place have created difficulties for some captive insurers to meet all the statutory requirements and deadlines in place. As a result, the NCDOI has waived certain requirements, such as original signatures and notarisations on documents and extending deadlines. We continue to assess the situation to determine if other measures are necessary to assist the insurers. Additionally, we have encouraged our industry to notify us of any individual special needs and the NCDOI will review those requests on a case-by-case basis.
There has been a logistical impact, as the NCDOI’s captive regulatory team has been operating remotely during the COVID-19 outbreak. Fortunately, with technology, we have been able to effectively handle our regulatory responsibilities, including the timely licensing and ongoing regulation of licensed captive insurers. Through emails, conference calls, and virtual meetings, we have remained available and accessible to the captive industry and to current and potential captive owners to discuss new captive formations and developments with existing captive insurers. Before the pandemic hit, the majority of our regulatory work was already handled electronically as filings are submitted by captive insurers and managers through the NCDOI’s online filing system and our analysis and licensing processes are also handled electronically. Given that, no real changes to our processes were necessary in order to make the change from working in the office to remote locations.
Have you seen an uptick in interest from potential new captives?
I mentioned the growth from new formations that has occurred already this year, which is about the same growth experienced at this time last year. With that said, everyone right now is still dealing with COVID-19 and its impact, but we have had and will continue to have discussions this year with captive managers and potential captive insurance owners about the formation of captive insurers in the coming months. We are hopeful that as business owners work through issues caused by COVID-19 and evaluate their risk management programme, they will consider the use of captive insurance companies to manage those risks. It is anticipated that as those risks are evaluated and as prices rise in the commercial market, more business owners will see the benefit of utilising captive insurance.
What are the state’s priorities this year and next for the NC captive insurance programme?
The most important priority will continue to be the ongoing regulation of the captive insurers licensed in North Carolina and the assistance our regulatory team will provide in resolving challenges the insurers are facing as a result of COVID-19. At this critical time, it is advantageous that the captive laws of our state allow the NCDOI to prudently and fairly regulate, with discretion, the financial condition of each insurer on a case-by-case basis.
In addition, whether working from the office or remotely, we will continue to be accessible and available through phone calls, emails, video conferencing, and hopefully before too long, in-person meetings. We continue to timely review and make decisions on filings presented to us.
As the situation with COVID-19 improves, we look forward to attending and participating in future conferences and captive insurance events to educate others about the benefits of forming a captive in our state. The North Carolina Captive Insurance Association’s 2020 Conference is scheduled for 31 August through 2 September at the Washington-Duke Hotel in Durham, North Carolina. Our entire captive regulatory team, as well as commissioner Mike Causey and chief deputy commissioner Michelle Osborne, will be participating in and exhibiting at the conference. We look forward to meeting with the captive industry at the conference, especially in light of the earlier conference cancellations this year due to COVID-19.
How do you feel about the NCDOI’s resources for regulating captive insurance companies?
The NCDOI is fortunate to have the personnel and technological resources in place to fulfil its regulatory and customer service missions. Our dedicated captive insurance team understands the nuances of appropriately licensing and regulating captive insurance companies. Our team is comprised of credentialed, professional accountants, actuaries, examiners and others in the NCDOI that provide support. Results of remote work during this COVID-19 event have demonstrated that our team members are responsible and possess the necessary tools needed for addressing regulatory responsibilities timely and appropriately, whether they are in the office or working remotely. The NCDOI continues to have the resources required to properly regulate current and future captive insurers selecting North Carolina as their home.
