Butler University’s Victor Puleo and Craig Caldwell discuss the re-domestication of the world’s first student-run captive from Bermuda to Vermont
Indiana-based Butler University, the proprietor of the world’s first student-run captive insurance company, has re-domesticated its Bermuda single-parent captive to be a cell captive in Vermont. Butler’s ‘Davey Captive Insurance Company’ has been officially licensed in the state.
Other changes to the captive include a shift in the hands of management from Aon to Hylant Global Captive Solutions, spearheaded by a former student at Butler, Claire Richardson, captive consultant at Hylant.
Since its inception in 2017, the Butler Captive has covered three lines: product liability, fine arts and animal mortality. It’s noteworthy that the university’s mascot English Bulldog ‘Butler Blue’ is provided coverage for by the latter. The Butler students choose what lines to put into the captive.
Why did you re-domesticate the Butler captive from Bermuda to Vermont?
Victor Puleo: The decision to re-domesticate was initially made about two years ago, after our original feasibility study and our pro forma based upon the first five years. The length of time taken is due to the complexity of balancing the academic and business side of the University.
We asked what was next for the captive. Then we requested one of our partners, Hylant, to perform a strategic review of our captive. Hylant has one of our graduates, Richardson, on the team who completed our captive classes.
They presented the strategic review to us, showcasing a new vision for what we could do with new lines of coverage that we had not previously considered. They also showed us the potential to make the captive a true experiential model that can be shared with other institutions that have risk management and insurance programmes, and beyond.
The students were involved in this process. The captive course is taught once a year in spring. In the spring of 2023, they helped decide whether we should re-domesticate, or leave it in Bermuda.
They chose to re-domesticate and managed to trim down the domicile options to just two states, which wasn’t easy. We had a Davey student present two options to the captive board, and the board made the final decision of Vermont.
Could you highlight the key individuals and relationships that prompted and assisted the smooth transition of this move?
Craig Caldwell: It boils down to two main categories of people: our colleagues and partners at Hylant, and the individuals from Vermont.
Puleo: Hylant has an Indianapolis division which makes spontaneous calls and meetings very easy.
Important to highlight is the hands-on involvement from Vermont. We had David Provost, Vermont’s former deputy commissioner of captive insurance, on our campus at least twice. We also had the current deputy commissioner, Sandy Bigglestone, visit us.
They’re the only two captive regulators that have ever set foot on the campus of Butler University. Vermont recognised and wanted the opportunity to have a relationship with Butler and the only student-run captive. There are 34 states with captive legislation in the US that could’ve had our captive, but Vermont wanted it more than anyone else
This demonstrates the types of relationships that we build at Butler, a two-way partnership, not a one-way street. This is also what we have with Hylant and what I believe we will have with Vermont. We are onto a winner with Vermont — this was proved to us by the way they handled our application.
Caldwell: Naming key individuals, Richardson at Hylant was instrumental in the transition. In Vermont, I was also impressed by Ben Gould, director at Paul Frank + Collins P.C., who was the attorney. As I’m not a risk and insurance specialist, he was very patient with me and provided some education along the way. I really enjoyed working with him.
How responsive was Vermont in provisionally licensing the new captive entity? How will Butler collaborate with Vermont to promote education?
Caldwell: Firstly, there were two interactions that we had — an initial submission, and then a set of questions that came back to us regarding the submission. I participated in both rounds, it didn’t feel like scrutiny. I got the impression that they were asking us these questions because they were very interested in knowing where we were headed.
Puleo: We agreed that this entire process felt collaborative. Before submitting an application, I went to the Vermont Captive Insurance Association’s (VCIA) conference in August, met the Vermont team in person and conducted a meeting. We talked about the possibility of moving the captive to Vermont right in the middle of their conference. They made it clear how interested they are in education.
Caldwell: There is a lot of potential for Butler to collaborate with Vermont for education. From Vermont I get the sense that we could have, for example, a Vermont member of this community Zoom into a class. I can imagine them participating in watching or judging student proposals for what additional risk we add to the captive. They’re going to be a good check-in to help us decide what to add to the curriculum, and identify what we’re missing.
Puleo: Vermont doesn’t currently have any university or college with an undergraduate risk management and insurance programme, yet they’re the single largest domicile in the world for captives.
They’re talking about how we can collaborate with some of their universities. Of course, they don’t run those universities, but helping to recruit the future generation of the captive industry is something that we all talk about.
Having the only student-run captive in the world in Vermont aims to help open some additional doors in universities and help them understand the size and capacity of the risk insurance industry, what they’re missing, and how we can work with them on their curriculum.
How will this move affect the day-to-day operations of the Butler captive? Do you foresee any changes in how students engage with the captive?
Puleo: The day-to-day operations of the captive initially will not change.
Our undergraduate risk management and insurance students take a course called insurance company operations. Part of that course is a chapter on underwriting, in which our students underwrite the products that receive product liability coverage from the captive under the supervision of the faculty. We will still be offering our students real-world business experience. There are about 80 different products developed annually by teams of sophomore students in the business school.
The change is looking for additional risk — that’s part of the strategic plan provided to us by Hylant. You have to have losses in order to perform risk analysis. We’ve had no losses to date, but the types of risks that were put into the captive originally, for the first five years, were specifically designed not to have losses.
Now, we’re going to be actually looking at lines of coverage that have losses. The analysis component will become even more important. We are going to be asking, does it make sense to put coverage in the captive based on our loss histories or do we just take it with an insurance company? There’s a big gap there, and our students will learn that in the captive class.
Caldwell: Additionally, this new development for the captive will take the subject class to the next level. Students are going to have to consider ‘what can a captive be?’ and engage in high-level thinking about the role it might play in an organisation.
What are the benefits of converting the Butler captive from a single-parent captive to a cell captive?
Caldwell: Opportunity — for Butler to do a better job of managing its total cost of risk, and to partner with other universities.
Puleo: A key reason people use captives is to lower the cost of risk, and we’re looking to demonstrate that as we haven’t done over the past five years. We can then utilise the cell to share this with other institutions of higher education, giving them the chance to put some of their risk into a captive with relatively lower costs compared to creating their own single-parent company. Our students will work with Hylant to develop a strategy for this aspect.
Caldwell: There are universities in the US that have multimillion-dollar captives running in them already. But they don’t have any student or curricular component to them.
Their operations are based in the back office, therefore if they were to convert to a cell captive they wouldn’t have the mechanism to take this to other universities and help them educate their students in the process.
Our challenge is we don’t have as much capital running through the captive, but we do have the resources to help universities adopt the captive curriculum.
Puleo: Considering the talent gap, there’s only so much curriculum you can cover. Captive insurance is an alternative risk finance course, and unfortunately, most universities don’t have any experience in that space. This is going to give us the opportunity to share the curriculum ‘in-the-box’ and help the faculty grow. We’re also going to help their programmes expose more students to the captive space. Ultimately, this is the goal of the cell part. Butler is focused on helping other universities; for example, I’m currently working with three other universities with their curriculum.
Business Insurance just released its rankings, and Butler is the 12th largest programme in the country. Given the enrollment at our university, we’re very well represented on this list.
Caldwell: Going forward, another opportunity is the study of the insurance industry as a global entity. To a large extent, what we teach is US-based, but we’re working with global companies that are everywhere. We are still figuring out how to get there, but we’d like to deliver a product that will enable a student to work at AXA XL in France or Allianz in Germany.
Are there any new risks the Butler captive is underwriting that you’d like to highlight?
Caldwell: We did a great job of executing the first five-year plan. Now it’s time for the next five-year plan, and that always carries a certain risk. It’s a key differentiating factor of our business school, and our internal senior leadership have put their faith in us to make this work.
Puleo: Our strategic review identified a few different risks that we could begin immediately. We are calling it the ‘crawl, walk then run phase’, because you can’t do it all at once. Initially, we will begin the process of looking at the risks that we talked about in the crawl space. That’s what we will address in the captive course this year. We will obtain new data and new pricing. Obviously, in the commercial insurance industry, many lines of coverage are experiencing huge rate increases. This makes the lines in the crawl space exciting, but the lines in the run space even more so. But it takes time. Simultaneously, we are also developing what we’re teaching our students, and the strategy to teach other universities.
What are your future aspirations for the Butler captive, could you shed some light on its long-term strategic goals? How do you plan to involve more students?
Puleo: Lowering the university’s total cost of risk, adding additional lines of coverage that actually have loss histories, where students can do the analysis.
Then making the programme available to institutions of higher education to use, whether they just simply put their risk in and their risk manager deals with it, or whether those universities also have a risk and insurance programme and then they want to have their students involved. We’re hoping it is the latter, so we can help recruit more students into the captive space by giving them exposure to what captives really are.
Caldwell: At a high-level strategic perspective, at least in the US, the question that is bubbling at the centre of higher education is, is this worth it? What’s the value of higher education?
We’ve tried to partner with as many industries as possible, such as General Motors, which recently visited our campus, to ensure our students gain real-world insights and professional expertise. This initiative could demonstrate what a university partnership with industry can accomplish and would be hard to replicate outside of a higher educational institution.
Puleo: The advantage of our captive course is it creates more employment opportunities, and it will do the same for other universities that partner with us.
Employers will hear that they are using our captive programme, and will also want to hire their students in great numbers like they do for our students.
Caldwell: This is a strategic advantage for Butler, but we are willing to share. The talent gap for captive insurance professionals is huge, and I would estimate that we could add 20 to 40 university partners to our programme and still not meet the needs of the industry.
