Hit Me with Your Best Shot

I just received my first shot of the COVID vaccine yesterday, and it provided a real boost of optimism that we are heading out of this weird nightmare. I would never have guessed how excited I’d be about getting a jab in the arm with a sharp needle!

Governor Scott of Vermont, who has been incredibly disciplined about taking necessary precautions, has said he expects the state to be more or less open by July 4th.  As we start to head into nicer weather up here in the Great North, that is  good news. Still a lot to be worried about when I scan the news from around the world: huge spikes in Brazil, slow rollout of vaccines in Europe, the fact that many in the developing world won’t see vaccinations until next year.

COVID is indeed an international issue – not only is there a truly humanitarian issue at stake, but the pace of vaccinations around the world will impact us all.  That’s why it was interesting to hear about the new Global Health Risk Facility (GHRF). The GHRF is a highly collaborative undertaking that insures the transportation and storage of COVID-19 vaccines, and other critical health commodities, for the benefit of low, middle, and upper-middle-income countries. The GHRF has been developed by Parsyl, a Lloyd’s Lab alumni, in close partnership with AXA XL, Ascot and McGill and Partners. AXA XL will lead the risk management and local policy implementation.

What’s also interesting (though maybe not a big surprise) is that  many of the pharmaceutical companies involved with the development and manufacturing of the vaccines chose to base their captives here in Vermont. How cool is that?! Pfizer, Johnson & Johnson, and AstraZeneca all domicile their captive insurance companies here, for good reason.

I look forward to learning  more about how captives were utilized in these extraordinary times. Which is exactly what will happening as part of the VCIA Signature Series, this coming Tuesday, April 13th! One of our sessions is on disaster (and unforeseen event) preparedness and recovery. We will learn from captive owners whose programs have navigated the treacherousness of the pandemic, sure to be fascinating. Also in the line-up for that day is a great session about cyber-risk and it’s ever-expanding nature of threat. The day ends with a private forum for captive owners to get together, see each other (via camera), share ideas and collaborate. Should be a great day and it’s not too late for you to register! More info at http://www.vcia.com.  

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Your Signature (Series)

Join VCIA for its Inaugural Signature Series Event on April 13th! The Signature Series is an online event consisting of two Captive Education Sessions, each followed by Guided Discussion Groups hosted by Industry Experts. The day also features a Captive Owners Forum.

The first session will be the dramedy  “Disaster! – What’s the Plan?” exploring the reactions, interactions, and strategies to prepare your company and captive program for the next unforeseen event. We’ll illustrate real time issues companies and captives faced in the wake of the declaration of the COVID-19 Pandemic and how to better prepare your company for future disasters and other major business challenges. Our cast of thespians will examine the importance of a disaster preparedness plan, its key components and how to craft such a plan for your company. The stars of this dramady are Julie Bordo, President & CEO of PCH Mutual Insurance Co. Inc. (RRG), Hugo Crawley, Chairman of TigerRisk Partners (UK), Gail Newman, Vice President of Risk Management for Bright Horizons Family Solutions, and Michael O’Malley, Managing Director of Strategic Risk Solutions.  It may be so good we take it into syndication!

Our second session will look to answer many questions around cyber risk and captives. As cyber-attacks become more frequent and increasingly harmful, are you prepared? What risk financing and management techniques are you using today to handle your cyber risk? Are you familiar with regulation and governance required to manage cyber exposure for your organization? How do you design a program which provides appropriate coverage cost-effective price, along with the associated vendor costs, to prepare if a cyber event occurs in your organization?

Elisabeth Case, Managing Director at Marsh, John O’Neil, Corporate Insurance Risk Manager at MassMutual, Dan Petterson, Director of Captive Examinations for Vermont’s Division of Captive Insurance, and Uso Sayers, Managing Director at Johnson Lambert, will share knowledge of best practices, and what coverages you need to ensure for, both in and out of your captive, to protect your organization from this ever-expanding threat.

And finally, for our captive owners only forum, two captive owners will lead a dynamic discussion with other captive owners exploring current industry challenges, solutions, new ideas and industry best practices. Melinda Young of NC3 and Brian Johnson of Alliance of Nonprofits for Insurance, RRG, will corral the issues most on the minds of captive owners using interactive technology.

Click here to register today!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

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

This Week’s All Stars

Some of the many Captive All-Stars who presented this week at WCF — Bravo all!

I attended the virtual World Captive Forum this week and it was great to see many friends over the two days. I was working the Vermont booth (remember those days…) so was not able to see all of it, but there was some good stuff on several sessions I was able to join.

The regulators panel with Vermont’s own Dave Provost, Deputy Commissioner – Captive Insurance, Vermont Department of Financial Regulation; Carl Culmer Jr., Manager – Policies and Practices, Insurance Commission of The Bahamas; and Travis Wegkamp, Director of Captive Insurance, Utah Insurance Department was ably moderated by Joe Holahan of Morris Manning & Martin LLP (and member of VCIA’s Legislative Committee). It was good to hear that each domicile was more or less in synch with each other as they discussed legislative and policy updates, new and emerging risks, and the outlook for the captive industry post-pandemic.

Dennis Silvia, Davies Captive Management and VCIA board member, did a super job with his panel, The Art of the Cell (very clever!), outlining the dramatic increase in the popularity of the use of cells and how they are currently being utilized in risk financing programs.

The topic of the hard market and evolving global risk landscape was of course a prominent area of focus throughout the conference. Another terrific panel highlighted the importance of captives in long-term risk financing and risk management planning. Deyna Feng, Director, Captive Programs at Cummins Inc.; Mike Maglaras, President of Michael Maglaras & Company; and Anne Marie Towle, Global Captives Insurance Leader of Hylant (another VCIA board member) discussed how companies are re-defining their risk appetite to take control of their own destiny by using captives to complement traditional insurance placements and fill coverage gaps. Anyone who has not yet had an opportunity to meet Christine Brown, Assistant Director of the Captive Division in Vermont’s Department of Financial Regulation, moderator of the session, should check out this rising star!

And speaking of the captive insurance firmament, the all-star panel of Sandy Bigglestone, Director of Captive Insurance at Vermont’s Department of Financial Regulation (Women to Watch winner 2018); Ellen Charnley, President of Marsh Captive Solutions (Women to Watch winner 2018); Karen Hsi, Program Manager- Captive Programs, University of California Office (Break Out winner 2020); and Amy Evans, Executive Vice President, Intercare (Women to Watch winner 2020) did an amazing job explaining why captives are well suited for crises such as a pandemic, hardening market and social unrest.

Great job all around!

An update from my blog on February 5th challenging you to identify the people in the 80’s era photo. Maria Young of Alcoa, who was present at the party, won the box of chocolates for identifying most of the group. She was an insider, but there was nothing in the rules that said the people there could not answer! Here is who was in the photo:

Diane Leach; Mary Wrenn (now Woodward); Gary O’Hare ; Maria Young; Cynthia Reer (now O’Connor); Sue Urie; Jeff Kenneson; Scott Whittemore; Kate Westover; Nikki Kuhn.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Full Circle

Over the course of this 40th Anniversary of captive insurance in Vermont, I will share a photo or two from days gone by. The first photo is from Diane Leach’s first home office in 1987 where she ran VCIA before “upgrading” to a couple of office spaces throughout the years. Lots of clunky office equipment and Diane said the fax machine would ring all night!  Funny, how we have come full circle now that we are all working from home – and we may never go back to an office again (or at least not full time).

Even better is this photo from 1987 celebrating Diane’s departure luncheon at ARM (now Aon).  I recognize several folks in the photo – some still working in captives, others retired or passed. The guy standing to the right with the blue suit could have been me back then – just need to add parachute pants!  I will offer a box of Lake Champlain Chocolates to the person who can name the most faces in the photo!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Kickin’ it Off!

Great kickoff event for the 40th Anniversary of captive insurance in the State of Vermont this week. Each year in January, VCIA Members visit the Vermont State House for our annual Legislative Day. This special event highlights the successful working relationship between our Association and the State’s elected and appointed leaders.

This year, we switched to a virtual Legislative Day due to the pandemic and it was one of the most popular we have hosted! We started the day with a Q&A session from the leadership team at the Vermont Department of Financial Regulation’s Captive Division. They reviewed recent events and changes at DFR, as well as answered questions on what they saw on the regulatory horizon.

Midafternoon, DFR Commissioner Mike Pieciak hosted an hour-long captive industry review, highlighting 40 years of innovation and superlative regulation in Vermont. Mike also talked about how members of the Captive Division and others in DFR had taken on important roles in tackling the COVID-19 emergency in the State – the Governor drew on the expertise and competence of Mike and his department in modeling the pandemic as well as assisting in the distribution of COVID resources to Vermonters.

DFR’s Dave Provost and Sandy Bigglestone provided an overview of the captive industry in Vermont to legislators, members and guests attending, followed by Brittany Nevins, Captive Insurance Economic Development Director at Vermont’s Agency of Commerce, who gave the economic and market report. Yours truly did a quick summary of VCIA, before passing the baton to Julie Bordo, President & CEO, PCH Mutual Insurance Co. Inc. (RRG), who hit it out of the park with a presentation of her captive program and the important role Vermont has played in its success.

The final event was a zoom meeting with VCIA members and the new leaders under the gold dome. Lt. Gov. Molly Brown, Speaker of the House Jill Krowinski, and Senate President Pro Tem Becca Balint shared their valuable time with us talking about the issues and priorities they see ahead for the State of Vermont.  The enthusiasm they all brought to our meeting with our members contributed enormously to the success of the day.  Sen. Balint recounted the time as a new member of the Senate Finance Committee she reported out the captive bill on the Senate floor with a song! (Something she had to apologize to her colleagues for later 😊).

The cherry on top (literally) is that the State of Vermont provided a Lake Champlain Chocolate Thank You Gift Basket to a randomly chosen attendee of Legislative Day. The winner was our good friend Adam Dubuque of Johnson Lambert who has been in the industry for 18 years – almost half of the 40 years captives have been in business in Vermont! Yikes 😉

Thank you again to all of you who joined us this week. I look forward to hearing from you.

Rich Smith,
VCIA President

2020: Don’t Let the Door Hit You on the Way Out!

Season’s Greetings and Happy Holidays to all our VCIA family! I think we all will be glad to see the backside of 2020 and look forward to happier times in 2021. It was tough on all of us, and tragic for many, as we climb out of the grips of the pandemic. With the advent of the vaccines there is lightness on the horizon… even as we head into our shortest days.

2020 was not all bad, however. The captive industry continues to see exponential growth in numbers of licenses and interest around the country and around the world. Vermont has licensed more that 35 captives (not including many, many cells) already, and there is a stack of them waiting to get out of the gate on January 1st.

This is the time of year to look back on things to be grateful for as well. Now, more than ever, family and friends are so important to our wellbeing. I am also extremely grateful for working in such a wonderful and collaborative industry – it truly feels like family as well. My thanks to Dave Provost, Sandy Bigglestone, and their team at Vermont’s Department of Financial Regulation for their continued steadfast regulation; to Brittany Nevins, who so quickly and successfully slipped into Ian Davis’ shoes fighting to keep Vermont as the premier captive insurance domicile. Their good work flows beyond the borders of Vermont, positively impacting the captive industry overall.

Thank you to VCIA’s Board of Directors for all their support and guidance over the past year to the association, especially during these challenging times. I want to especially thank Jan Klodowski of Agrisurance Inc. as our chair until October and the captive attorney extraordinaire, Stephanie Mapes of Paul Frank + Collins, as out new chair since then.  Many thanks to our new vice chair Andrew Baillie of AES Global Insurance Company, independent consultant Donna Blair, Lawrence Cook of Sedgwick, Dennis Silvia of Cedar Consulting, Anne Marie Towle of Hylant, Derick White of SRS, Tracy Hassett of EdHealth and Jason Palmer of Willis Towers Watson.  And a fond farewell and heartfelt thanks to former board chair Wilda Seymour who has recently stepped off the board. All have provided their amazing talents and time to the association.

We continue our strong focus on events and on legislative and regulatory issues on behalf of our members. Many thanks to Jim McIntyre, and his partner Chrys Lemon, in Washington and Jamie Feehan in Vermont for their wonderful service to VCIA.   And my great thanks to the VCIA staff! Without their hard work, smarts and enthusiasm, we would not be able to accomplish any of the wonderful things we do for our members.  Thank you to Diane Leach, Elizabeth Halpern, Peggy Companion, Janice Valgoi, Dave Rapuano and Megan Precourt!

Most of all, thank you for all your support and see you next year!

Rich Smith
VCIA President

Black Swans for Thanksgiving

I, for one, am glad its Thanksgiving next week. First, I love the feast! Family and friends (well, er, no friends this year) gather for dinner and conversation – no gifts, no chocolates, no decorations. Just like me: boring but predictable. Second, like everybody I could use a break from the craziness that is 2020, and Thanksgiving does allow one the opportunity to take a reality “time out” at least for a day.

But as my mind drifted to turkey, another bird edged its way into my brain. The proverbial black swan that is at the top of mind for many of us in the insurance community. An article yesterday in the London Times by Alex Wright highlights how many in our world are working to create insurance solutions for things that historically have been labeled uninsurable, like the pandemic.

As Alex outlined in his article, traditionally, companies have mitigated against risk by taking out an insurance policy. Underwriters would spend hours poring over reams of historical data to determine the likelihood of the risk occurring before giving a quote.  But black swans don’t fit this mode well, as by definition they defy historical data – at least in the linear manner we usually think of.

The burgeoning world of artificial intelligence (AI) and machine-learning is looking to change that. The key benefit of AI in insurance is that it can quickly process large data sets and identify significant trends that mere mortals are unable to do.

Dr. Marcus Schmalbach created the VUCA (volatility, uncertainty, complexity and ambiguity) World Risk Index, a parametric index that uses machine-learning to gather data from a range of trusted and verifiable sources, many of which aren’t considered in traditional underwriting. That data is then rigorously analyzed alongside information the technology has gathered from previous experiences to look for patterns and links between events and determine the likelihood of a major event occurring. Among the areas his group has successfully modelled is business interruption loss in the event of a pandemic based on the data they crunched.

Climate change, natural disasters, political and trade conflicts, all could be better priced in the insurance world with new AI applications. AI can also reduce paperwork and the time taken to receive a quote or claim. Using parametrics, AI can also establish if an event has happened, thereby triggering payouts and avoiding any disputes.  Captives are well poised to take advantage of such innovation.

While nobody can predict the future with 100% accuracy, AI will allow insurers to detect anomalies that will help anticipate future events, like pandemics, and maybe better prepare us for the black swans. Perhaps roast black swan instead of turkey….

Thanks, as always, for your continued support in these trying times. I look forward to hearing from you!

Rich Smith
VCIA President

Friday the 13th – It’s Your Lucky Day

All of us in the captive industry, and throughout the broader risk management industry, are very rational thinkers who rely on science to determine the course of action we take in life, right?  A recent report published on November 10, 2020 in Captive International reminded me of how human behavior, with all its biases and superstitions, is a very difficult element in any kind of modelling.

The report, titled Viruses, Contagion and Tail-risk: Modeling Cyber Risk In The Age Of Pandemics, aims to better understand what modelers looking at pandemics and cyber risk can learn from each other.  The report highlights the lack of data from both types of viruses in trying to determine useful models for risk management. However, what caught my eye was this statement: “Although pandemics originate from pathogens, it is the individual and societal reactions to them that are hardest to model…”

I have always been fascinated by behavior economics as it tries to tackle our human foibles in a way that can be interpreted by economists to better understand how our world works. Even very intelligent, seemingly rational individuals are swayed by their internal biases. Science and economics are getting much better at “adjusting” for these very human traits and captive insurance will no doubt benefit as the industry sharpens risk modelling in everything from workers comp to liability. But just in case, hold on to that lucky talisman for now.

On another note, I want to wish Kevin Heffernan of Artex bon voyage as he announced he will be retiring in March 2021. Kevin has been with Artex for many years in a number of leadership roles and for the past 14 months has led captive operations across the US as executive vice president. Kevin was the first finance chair for VCIA at the start of my tenure over ten years ago and he did an excellent job of guiding the committee as well as providing me solid  advice on a wide range of topics Thank you, Kevin, and good luck!

Thanks, as always, for your continued support in these trying times. I look forward to hearing from you!

Rich Smith
VCIA President