Kevin Heffernan and John Tally

A couple of shout-outs this week to two great guys in the captive insurance industry.

Kevin Heffernan has announced his plans to retire from Artex in March of 2021. Kevin has been with Artex for 15 years in several operational and domicile management roles. For the past 14 months, Kevin has led captive operations across the United States as Executive Vice President. When I took on the role as President of VCIA a little over 10 years ago, Kevin was the chair of our finance committee. He was the ultimate steady hand on the tiller, providing excellent guidance and advice which was very important to a newbie like me. I wish Kevin well in whatever new adventure awaits him and hope to see him back in Vermont on occasion – even if it’s only in the summer!

No matter what captive conference I would go to, I always looked forward to seeing John Tally’s smiling face and his dry sense humor. John will be retiring from his role as captive program manager at the Missouri Department of Commerce and Insurance at the end of the month and will open a new business called TAL Consulting.  John spent 25 years as a regulator, with 10 of those years regulating captive insurance companies specifically. He epitomizes the captive insurance community – friendly, willing to share experiences and discuss mutually beneficial issues with ease, and he’s just a good guy. I’m glad he is staying in “the family” and look forward to seeing him in Vermont as well (and maybe other captive conferences).

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Slippery Slope

Just as we here in Vermont are starting to pack up our skis (not the hardcore, of course), the captive insurance industry is facing a new slippery slope.

Legislation approved March 9 by the Washington State Senate would set new requirements for captive insurance companies licensed in other domiciles but doing business in Washington State.  Under the legislation, S.B. 5315, captives licensed elsewhere and operating in Washington would be required to pay an initial registration fee of $2,500 and be assessed an annual two percent premium tax on insurance provided to their parents or affiliates for Washington risks. Captives affiliated with public institutions of higher education would be exempt from the premium tax.

Besides being poorly drafted, the bill sets a terrible precedent whereby acquiescing some regulatory oversight by the Washington State insurance commissioner on captives domiciled in other states. This is the culmination of a battle over the past few years between Washington’s Office of Insurance (OIC) and reality. For whatever reason, the OIC has not liked that companies in Washington can set up captives to better manage the risks of their organizations. The OIC seems to have turned a blind eye on the benefits of captives to these organizations, and in turn to the State of Washington, and instead sniffly says “we don’t approve”.  

For the companies and organizations headquartered in Washington, it has been frustrating I know. Finding a solution that gives some clarity to their operations as well as boundaries around taxes and potential fines forced a deal that neither helps the State of Washington, the companies doing business there, nor  the broader captive community. At some point, this law if passed could discourage the use of captives by Washington State businesses and nonprofits. All it will do is limit control and add costs. Washington could have instituted a self-procurement tax like several other states – instead, the OIC chose pride over prudence.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Captive Insurance Petri Dish

Interesting story in February’s issue of Business Insurance on the growth of the InsurTech sector seen through the number of IPOs and M&A activity. Valuable InsurTech companies are being hoovered up by some of the insurance sector giants, while there is also an increasing appetite in growing the InsurTech firms themselves.  The BI article quotes one InsurTech CEO saying the level of investment in the InsurTech sector is “profound,” with private equity firms investing in established InsurTech and venture capital investing in earlier stage startups, he said. “That’s why you’re seeing so much activity in the space — it’s well rounded.”

There many InsurTech solutions being tested and utilized in the captive sector as a spillover from the traditional market, of course, but few that I know of that have decided to stake their future on focusing almost entirely on our industry, which I think is a missed opportunity: captives have always been a great laboratory for innovation and new ideas to bring down costs, create efficiencies, and expand captive utilization.

Two firms focusing on the captive insurance market are AI Insurance and RYSKEX – very different models looking to shake up the industry. Cameron MacArthur is the founder and president of AI Insurance, and he comes right out of central casting: smart, young high-tech developer in Silicon Valley who recognized how artificial intelligence could be utilized to share information from insured and policy management, enabling automated end-to-end claims processing that is highly intelligent and dynamic, focused on delivering the captive’s ROI. He did this by digging down into the nitty-gritty around the processes and challenges captives and RRGs have as smaller (usually) self-insurance operations.

Marcus Schmalbach and his team at RYSKEX have a similar story, although located in Berlin instead of Silicon Valley. RYSKEX has developed a digital platform that allows a global network of leading investors to take on hard to insure emerging and systemic risks. It also enables captives to find the appropriate coverage using our parametric risk transfer solution and hedge their risks as securitized intangible assets, which can be traded transparently and securely using blockchain technology. Pretty cool.

Captives have played a valuable role as a laboratory for both these InsurTech solutions. I would not be surprised to see similar stories about these two firms in the next few years. Watch this space!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President