Advantage Insurance Management
Christina Kindstedt, president at Advantage Insurance Management, speaks to Diana Bui about the benefits of independent captive management
With 23 captive management firms approved by the Department of Financial Regulation (DFR) in Vermont, how does Advantage’s independence from brokers and insurers enable it to differentiate its services and value proposition in a market dominated by broker-owned firms?
The very origin, definition and nature of insurance are at the heart of captive insurance and our differentiation in the captive industry. This concept traces back to the mid-17th century, when the burgeoning maritime trade necessitated new ways to manage escalating shipping risks. Edward Lloyd’s Coffee House, situated by the River Thames, emerged as a pivotal hub for exchanging marine intelligence and addressing these risks, laying the groundwork for modern insurance practices. The rest is history. Insurance is a contract between an individual or business and an insurance company to help provide financial protection and mitigate the risks associated with certain situations or events. We all know that situations and events constantly evolve. That means new risks emerge even within the same lines of coverage. To be effective, risk mitigation needs to adapt to new risk environments. That means continuous innovation.
Captives have prospered because they can react to market needs faster than traditional insurance does. The same difference holds true between independent managers like us and the larger managers owned by brokerage firms. Getting back to our maritime roots, the larger the ship, the slower it turns.
Broker-owned management firms play an important role in the captive industry, but independent management firms, if staffed by seasoned professionals, can be more efficient and responsive while delivering the same level of quality services. The numbers bear it out. In Vermont, the world’s largest captive domicile, for every five captives, three are managed by the three largest broker-owned firms, while the remaining are handled by 20 other firms.
With 41 per cent of Vermont captives being managed by firms outside the top three broker-owned managers, what unique advantages does Advantage, as an independent captive manager, offer to captive owners compared to broker-affiliated firms?
Before delving into the unique advantages of being independent, it is crucial to emphasise the significance of professional experience.
Regardless of a ship’s size, you still need a capable captain to helm it in turbulent waters and an organised crew to row in the same direction. Although Advantage is an independent management firm, all of our associates have previously worked at industry-leading companies for at least a couple of decades.
Equipped with years of hands-on captive management experience, our team has the technical know-how to meet the challenges in front of our captive clients.
Without a deep-rooted understanding of the captive industry, one could not provide the needed solution for one’s clients. On a capability level, we are no different from the largest management firms.
Our differences come from our approaches. We, the independents, are far more nimble in adopting and improving on accepted practices. For example, protected cell captives (PCCs) have been around since 1997 and have met numerous captive owners’ needs.
Years ago, during my tenure at a larger firm, I observed the protracted process of forming a PCC, primarily due to the lack of understanding among many in the corporate hierarchy about captives, let alone PCCs.
Before granting each approval, we needed to educate and convince everyone involved. By the time the PCC finally got licensed, the potential cell owners had found solutions at competing management firms. I have formed a few PCCs since joining Advantage in 2017. The due diligence process, as complete as that at the larger management firm, took much less time.
Client referrals have been a significant driver of growth for Advantage. Could you elaborate on the key factors that contribute to client satisfaction and loyalty, leading to positive referrals in a highly competitive industry?
Client referral is the highest form of compliment. We are glad to see that over 90 per cent of our growth came from referrals. Competence and service rank at the top of our list of key factors. Two anecdotes are representative of how we win.
A few summers ago, I happened upon two captive owners engaging in a deep conversation with another captive management firm. I caught up with the owners, who explained that their manager of 16 years had experienced high employee turnover, so the service suffered.
They had talked to the other firm for months but had not switched. That brief conversation provided me with just enough information to conduct research on the captive. Armed with my research findings, I discussed with the owners the strengths and weaknesses of their current operations.
They exclaimed: “You understand us!” It turned out that, as much as they wanted to leave their incumbent manager, the other management firm never delved into operational details during their months of courtship.
That captive has not only become one of our very satisfied clients, it has also become a strategic partner in our services for other captives. One could chalk that up to luck.
But without extensive knowledge of the captive industry, we could not have turned that chance encounter into a detailed Q&A with the owners and then into a client and now a partner.
Service is just as important as competence. We strive to respond to clients’ inquiries within 24 hours. Captive owners understand that analysing and answering their questions takes time.
They are willing to wait, but they appreciate a status update while waiting. One of our most recent successes involves a global conglomerate, whose captive was managed by a leading firm.
The senior staff at that firm are very capable professionals. But the client had a hard time getting the senior staff’s attention.
They tracked down our team’s contact information, asked their attorneys, auditors, and actuaries for feedback on our services, and moved to us after completing their internal procurement process, all before we even had any inkling.
Multinational clients often seek independent managers to mitigate potential conflicts of interest. How does Advantage navigate this landscape and foster strategic alliances with independent managers in other regions to deliver seamless global solutions?
Advantage has offices in Bermuda, Cayman, the US, and Puerto Rico. We collaborate with other independent captive managers in regions where we have yet to establish a presence.
It is fascinating how similar we independents are to one another.
Our associates have all apprenticed at big firms for a couple of decades before joining an independent management firm. We all have the professional experience to help our clients regardless of the diversity of their challenges, and we all have the agility to respond to each situation in a timely manner to the clients’ satisfaction.
The global village has been very kind to us independent managers. One of the captives under our management is owned by a UK company headquartered in Dubai with a growing presence in the US. It came to us through the network of independent captive managers.
While larger companies have embraced outsourcing models to leverage cost efficiencies, Advantage relies on local talent. Could you elucidate the strategic rationale behind this approach and how it aligns with your firm’s core values and commitment to quality?
The rationale is simple: service quality, human connection, and Vermont’s special place in the captive industry.
More than 10 years ago, the management firms owned by the world’s biggest three brokers began outsourcing overseas.
I remember the justification from those early days: for every captive manager we hire in Vermont, we can hire multiple managers in India and Bangalore. More surprisingly, some smaller captive management firms have turned to outsourcing in recent years.
My outsourced colleagues, before I joined Advantage which does not outsource, are wonderful people, and we remain friends to this day.
But the cost efficiency is more than offset by other consequences: they have to work US hours, which disrupts their sleep patterns and family lives.
Although captive management requires good accounting skills, a good manager needs many other important skills: the ability to interpret a fronting agreement or reinsurance treaty into numerical values; the ease with which to explain a captive’s operations to its owners; the vision to improve upon existing structures; and the aptitude to design and follow steps to execute strategies. These skills require years and suitable environments to develop, making them unavailable to outsourced service providers.
Additionally, there is always a loss of information during the translation process. Because outsourced captive managers rarely get in front of clients, there is a limit to what they can work on. It is a vicious cycle where the captive owners do not get the attention they need, while the service providers don’t get to advance their knowledge or careers.
Probably the biggest consequence for the captive industry is the dearth of experienced captive managers in their 30s. Outsourcing robbed young college graduates of the opportunity to learn from the ground up.
Recently, I was commiserating with a captive owner about the difficult job market for employers. His company, whose captive we manage, employs 80 tax accountants, an area as specialised as the captive industry. Outsourcing has led to a labour shortage, so they can not properly staff. They face the same challenge, even with their clout.
At Advantage, we believe that our investment in local talent delivers far superior service to our clients and quality of life for our employees. Vermont has been a leader in innovative thinking for more than half a century. The counterculture movement of the 1960s and early 1970s initiated this trend, drawing innovative youth to Vermont through the so-called back-to-the-land movement.
The initial influx of talented and passionate thinkers created an intellectual environment and culture that continued to attract new talent to the state long after the euphoria of the counterculture movement subsided, eventually fueling major breakthroughs in new approaches to sustainable agriculture, environmental stewardship, and small, nimble, socially conscious business models.
Because of its unique intellectual and cultural climate, along with its stunning beauty and high quality of life, Vermont has continued to attract extraordinary human talent who serve as a ‘maternity ward’, so to speak, for wide-ranging innovation. Vermont’s early embrace of the captive insurance sector and the spectacular success that followed are a splendid example of the fleet-of-foot innovative spirit that is so prominent across the Vermont cultural, environmental, and business landscape. For Advantage Insurance Management, this is the perfect place to hire.
Our industry, ever so swift at managing risks, has begun the mitigation process. For example, VCIA formed the Vermont Captive Insurance Emerging Leaders (VCIEL) last year to address the captive workforce challenge for the next generation. VCIEL meets on a regular basis to strategise how to make a difference for students and those new to the captive industry.
Innovation is often cited as a critical differentiator in the captive insurance industry. Could you highlight some recent initiatives or proprietary solutions developed by Advantage that have enhanced the value proposition for captive owners?
There are plenty of examples. The common theme is not so much one individual’s or one firm’s innovation as the creativity that sprouts when a group of seasoned professionals get together. On one of my trips to New York City over a year ago, an industry acquaintance and I decided to meet for coffee in his office after I wrapped up my scheduled meetings elsewhere.
I joined the meeting in his office, expecting half an hour of chitchat, and was surprised to find five others in the room, with three more on the huge projector screen on the wall. I did not know it at the time, but they had already talked to and rejected two of the largest captive management firms.
Our discussion quickly turned into an intensive Q&A session on captives, and our half hour stretched into two and a half hours. Soon after, they hired us to set up a captive for a specific purpose developed during the meeting. Once we obtained the captive’s licence, we engaged in further discussions and generated additional ideas. Innovation begets innovation. In the end, we developed a programme that saved them almost US$40 million in capitalisation.
One of the individuals in the room introduced us to another opportunity, which has now blossomed into a client relationship. In this industry, I am constantly amazed at the wonderful opportunities inspired by the accomplished professionals we work with, both on our team and with our partners.
As an independent captive manager, how does Advantage navigate the evolving regulatory landscape and ensure robust compliance frameworks are in place to adhere to relevant laws and regulations across multiple jurisdictions?
Our associates had worked in larger firms for years before coming to us. We understand captive regulations’ fundamentals, which have not changed much.
For example, the National Association of Insurance Commissioners (NAIC) implemented risk-based capital ratios in the US in the early 1990s and has been modifying its formulas annually to account for new risk developments, but the basics remain the same.
Solvency II came into effect in the European Union in early 2016, the same year when China enacted C-ROSS, short for China Risk-Oriented Solvency System. When you look at their specifics, they all have very similar quantitative aspects.
Despite this, our associates are actively involved with legislative updates and captive associations in various domiciles.
For example, two of my team members serve on the Vermont Captive Insurance Associations’s (VCIA’s) Legislative Committee. This perspective allows us to plan for changes months before they become actual laws.
We form and manage captives in multiple domiciles. There are some differences in each domicile’s captive regulations.
Domiciliary regulators are all very good at communicating the changes before and after implementation, typically giving us a few months to prepare our captives. Most of the changes are improvements or clarifications of current legislation.
In an industry characterised by consolidation and the presence of large, global players, what unique challenges does Advantage face as an independent firm? And how does your strategic approach address these challenges to maintain a competitive edge?
Different captive owners have very different procurement philosophies. Due to their corporate mandate, some captive owners will only consider the top two management firms, while others intentionally seek out independents like us because their brokers already work for the top two firms. The latter prefer independents in an effort to eliminate any possible conflict of interest.
We find that current and potential captive owners have already done their homework before contacting us. Yes, many captive owners only go to the top two firms. However, our current clients, or others in the industry, typically refer to us as this type of captive owner. They are less enamoured with marketing hype. They are far more interested in the nitty-gritty of day-to-day management. My first call with a new captive owner typically lasts well over an hour because they get straight down to the details. They are a self-selected group that likes to get into the details.
Captive owners increasingly seek tailored solutions to meet their specific risk management needs. How do Advantage’s independence and agility enable you to deliver customised services and solutions that align with your clients’ unique needs?
In our industry, the phrase “if you’ve seen one captive, you’ve seen one captive” holds true. When two companies of similar size from the same industry go to traditional carriers, their quoted premium, coverage scope, and limits will likely be very similar as well. However, when they delve into the potential benefits of captives, a multitude of additional factors come into play: do you have a tendency to buy or spin off business units?
How much risk can you tolerate in your captive? Given your loss history and future plans, would more or less risk retention benefit you more?
There is a misconception that the more a captive retains, the less commission a broker makes. Captive owners sometimes wonder: if my broker and my captive manager work for the same firm, would my captive manager present a programme that could potentially lower his or her broker colleague’s commission?
This is where our independence is crucial to the captive owner. Our total independence from brokers removes any possible conflict of interest.
Looking ahead, could you share Advantage’s strategic priorities and growth initiatives as you strive to reinforce your position as a leading independent captive manager in an increasingly competitive and dynamic industry landscape?
Our number one priority is to serve our current clients well. I spend far more time in the office than on the road. Each associate on my team is a hands-on manager. All of us are intimately involved in our clients’ day-to-day management work. Many of the captive owners who come to us usually start their search by asking their industry friends for recommendations. Others came to us after growing dissatisfied with their incumbents.
I must emphasise that many captive management firms have excellent associates on their teams. But when there is a corporate mandate to grow your business by a certain percentage annually while driving down costs, it may incentivise business development at the expense of client service.
We, on the other hand, will always put client service at the top of our priority list because our history has proven that clients will come to the door without us pounding the pavement. An attorney friend once succinctly summarised it for us: “When you do good, you do well.”
How does Advantage differentiate itself by offering “premier services and innovation” without a built-in broker network or affiliated insurers to offer bundled solutions? Could you give specific examples of how your services and innovative approach provide superior value to captive owners?
Just like our independent management firms, there are niche market brokers who are enormously successful in their chosen sectors. I am very fortunate to have worked with several of them over the years.
I still remember the call that I got from a broker friend years ago: “Everyone says that this type of company cannot form that type of captive. But how did Berkshire Hathaway pull that off recently?” I did not know, so I researched. It turned out that Berkshire Hathaway had repeatedly tried to enter a market for over 10 years but just could not get in.
Their attorneys successfully cracked the captive code, enabling them to gain access to that market via a captive. In fact, they dominate the market now.
Only a few people in the country were aware of this advancement, one of whom was my broker friend. I put in a request for public records and got a redacted version. That is enough for me to figure out the rest. I am not the original creator, but I certainly learned from him. There are a dozen such captives now, with a combined annual premium of just under US$500 million. I formed five of these. We are forming another one as of this writing.
While larger firms have opted to outsource operations, Advantage relies on local talent and provides a work-life balance. How does this approach to talent management and workplace culture contribute to the quality of services you provide to your clients?
The senior members of my team have all worked in captives for years, and they have chosen to join us despite tempting offers from elsewhere. Our organisation is very flat.
I still manage a few captives day in and day out. A number of my team members have commented that in their old jobs, they used to spend about 10-15 per cent of their time doing things unrelated to client servicing, and now they get to spend nearly 100 per cent of their time servicing clients. They got their lives back.
Someone on my team put it well: “We are busy here, but not overwhelmed.”
Happy employees give more back. We recently came under a tight, unexpected delivery deadline. One of the team members was on vacation, but she voluntarily returned without any prompting. And we delivered.
As an independent captive manager, how can you guarantee your clients’ access to a wide variety of insurance carriers and solutions, free from potential conflicts of interest or exclusive agreements that broker-affiliated firms might possess?
The lack of broker affiliation has expanded, rather than limited, our access to carriers and solutions. As an independent, there is no broker colleague who will force us to use his or her services.
We work with brokers of our choice when a broker is required. We collaborate with the three largest brokerage firms, although they could have gone to their in-house captive managers.
Many carriers now allow us to work directly with them, thereby eliminating the brokerage fee for our clients. As a result, we have managed to bring our clients into partnership with some of the world’s largest insurers. Exclusivity can undermine competitiveness, especially without transparency.
We, as captive managers, want transparency and competitiveness for our clients.
