Burlington received the Hollywood treatment as the stars of captive insurance descended on the 35th VCIA conference, to talk cyber, US group captives, and more, and celebrate some lifetime achievements while they were at it
The Vermont Captive Insurance Association (VCIA) celebrated its 35th anniversary with a bang, embracing the ‘lights, camera, captives’ theme of its 2016 conference. Welcoming more than 1,000 attendees from 41 US states and 14 countries, it was always set to be an extravaganza. Richard Smith, president of the VCIA, said: “We want it to be the conference that everyone in the captive industry wants to come to.”
Dave Provost, deputy commissioner of the captive insurance division at the State of Vermont’s Department of Financial Regulation, revealed that Vermont has registered 11 captives so far this year, and more waiting in the wings. Provost also revealed that four companies had registered interest in Vermont during the conference itself.
Although Vermont had 14 captives licensed this time last year, Dan Towle, director of financial services for the State of Vermont, noted that the state ended up with a total of 33 captives at year-end 2015,with much of the activity happening in Q4. Towle also revealed that the most popular industry sector for captives in Vermont is manufacturing, which stands at 15 percent, followed by healthcare at 14 percent, with a difference of three companies. He said: “Continued diversity is our trend here is Vermont.”
The conference agenda provided attendees with advice on how captive boards and management teams should cooperate. Stephen Crim, a partner at C&S Specialty Underwriters, said that captive board members are there to support the business and should leave the management in charge, or replace them. Crim suggested that as a captive matures it is important to have professional managers on board, whether that is a captive manager or a programme manager.
Crim said: “You have to let the management team run with that, and the board’s role then becomes more of a supervisory role [of] oversight. Let the management team set the strategy and the board should be asking probing questions and challenging management all the time.”
Another panellist, Judy Ertel, president of Dynamo Insurance Group, agreed that board members are there for support. In her experience, she said, board members support the strategy of solving problems for the business.
“I think as a captive manager team and risk insurance team, we do a good job of formulising the process by which the business comes to us to ask or request customisable kinds of coverages,” Ertel said.
She added: “The board’s role in all of that is we have to find an official process where the management team can demonstrate clearly and transparently that the business has the exposure, the data is there, the analysis has been done and the decisions have been made, so that the board has the ability at a high level to see the due diligence process has worked.”
Tyrone Garrett, director of HAI Group, noted that the situation is different at his organisation because, other than two independent directors on the board, everyone is an executive director of a housing authority, which means their input is important.
He suggested that the situation is unique for different types of business and, because at HAI Group there are directors at that level, “we have a strong influence on what we can use on a daily basis at our agencies”.
Ever a hot topic in captive circles, cyber was a popular talking point at the VCIA conference. A panel session poll revealed that 51 percent of attendees’ organisations have experienced a cyber attack within the last five years.
Session attendees were also asked if their organisation has any type of cyber coverage and if so, whether that coverage includes the company’s captive programme.
Of the attendees, 32 percent said they do not have any cyber coverage, 54 percent said they have cyber coverage included in their captive plan, and 14 percent said ‘some or all’ was covered through their captive plan.
Martin Ross, managing director of Aon Risk Solutions, explained to the audience that cyber has no boundaries, and criminals are not likely to select one company over another.
“Every company is vulnerable to a cyber breach.”
He claimed that the one of the biggest cyber threats is actually the employees at a company, rather than outsiders, and suggested that this type of threat could come from a disgruntled employee.
Companies should keep in mind its employees, Ross stressed, pointing out that some companies are not allowed to have mobile phones next to their computers as it could be seen as a threat to the company.
He also revealed that prime targets could include healthcare companies and banks, because their data is worth a lot of money.
The panel suggested that the top three risks to companies are: damage to reputation and brand; economic slowdown; and regulatory and legislative changes.
Speakers predicted that by 2018 these risks would change and, instead, the top risk to companies will be increasing competition.
Group captives, particularly in the US, also proved to be a star of the show. During a poll in the panel discussion, ‘Group captives take centre stage’, 74 percent of attendees said they would choose an onshore US domicile to set up their group captive, in comparison to 3 percent who said they would opt for for an offshore domicile.
Monica Everett, business development director at Artex Risk Solutions, suggested that this shift could be down to recent scrutiny from the Internal Revenue Service.
Everett explained that Grand Cayman and Bermuda used to be the most popular domiciles, but recently there has been a shift back to domiciling onshore in the US.
Len Crouse, partner of US operations at JLT Towner Insurance Management, suggested that people “feel better moving to onshore”, considering the increased scrutiny on captives from the federal government and the National Association of Insurance Commissioners.
The panel also noted the benefits of creating a group captive. Some included group captives providing more control, premium based on loss experience, improved purchase power, the opportunity for underwriting profit, and investment income benefit.
Finally, attendees were also warned with the message that a company should re-evaluate its captive risk appetite and exposure of its captive at least every five years.
A panel discussed the reasons why companies should review their captives and what they should look out for when conducting a review.
One panellist suggests that companies need to consider regulatory and risk changes, the ways in which the captive could better serve customers, and the changing economic landscape, all of which need to be regularly reviewed.
Companies should use this review as an opportunity to take emerging risks into consideration, including medical stop-loss, pensions and cyber, however, the panel warned that companies need to think twice before including reputational risk, as it is difficult to measure and is not covered by cyber.
A captive can also be used to provide tools to manage reputational risk, such as crisis management, as part of an insurance product, the audience heard.
The panel went on to inform delegates that reviews must also be used to recognise the unknown factors and in-built risks in organisational strategy, to create extreme worst-case scenarios with risk sensitivity, to examine risk shifting and distribution, and to review the need for diversification.
As well as celebrating the last 35 years of captive insurance, the VCIA hosted its own awards ceremony, seeing Stephanie Mapes, Michael Bemi and Dennis Silvia handed industry awards by VCIA president Smith.
Mapes, president of Paul Frank + Collins was given the industry service award, while Bemi, CEO of the National Catholic Risk Retention Group was presented the honorary member award. Finally, Cedar Consulting president Silvia scooped up the ‘captive crusader’ award.
Although a different kind of celebration, the session also recognised a bout of recent and upcoming retirements from the captive industry.
These include Dennis Harwick, president of the Captive Insurance Companies Association, and COO of USA Risk Group Andrew Sargeant.
