All Hat… No Cattle

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I always loved this Texan saying, and it is so appropriate as I am heading off to San Antonio to the humongous RIMS conference there next week and I have neither hat nor cattle.

A small, but intrepid, Vermont contingent heads to the RIMS conference every year where we proselytize on the magnificence of captives to the passing hoard (usually about 10,000 or so folks). Ian Davis will be our valiant captain as a bunch of us hang out at the cool Vermont booth for the conference. And Dave Provost and a number of the DFR champions will join us as well. So if you are going to be down there, please swing by the booth and grab a bowl of Ben & Jerry’s or pure Vermont maple syrup!

Speaking about the opposite of All Hat, No Cattle, Business Insurance handed out a couple of their 2018 US insurance awards to risk management programs recently, and one of our outstanding members picked up a trophy.  The honor for 2018 Risk Management Team of the Year went to global electrical power company AES Corp., American International Group Inc. and Marsh L.L.C. for their innovative approach of embedding terrorism and resultant damage cyber coverage within AES’ existing global captive property program, eliminating potential gaps between policies, providing additional limits and expanding cover to all AES insured assets. Andrew Baillie, program director of global insurance for AES, is the facilitator at our session of captive owners looking at international issues at VCIA’s annual conference this August.

Registration for the VCIA Annual Conference opens May 1st. We look forward to seeing many of you there for another excellent program!   Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Corporate Responsibility…. And a Good Wage

career-goalsOne of the biggest issues facing the captive insurance industry, indeed the entire insurance industry, is filling in our next generation of workers and leaders. I was listening to Bob Hartwig of the Darla Moore School of Business, University of South Carolina, talking on A.M. BestTV on recommendations on how the insurance world can and should attract the next generation workforce to our broader industry.

His number one piece of advice was to articulate a clear path for candidates looking far down the road on what is expected and what opportunities lay out there – even ten years out. Students are really looking for what opportunities lay open to them, including wages and benefits. That isn’t to discount corporate responsibility: young people today are looking to work for an organization with a positive mission and workspace, and take into consideration corporate responsibility, whether locally or globally.  Just understand good wages, benefits and opportunities for advancement are as important to newer entrants into our industry as it was to us all those many years ago!

Other good advice from Bob included:

  • Use relatively new colleagues in your particular company as an ambassador for new entrants to see how they got to where they are now, as well as give advice on the pathway. Students in risk management programs can relate and identify with that person and allows them to see where they might be in the same timeframe. Companies that bring these ambassadors into the classroom tend to get a lot of resumes very quickly.
  • Get an early start – some of the best students often have jobs six months before they graduate! With a strong employment rate, it’s very competitive for good candidates.
  • Institute a formal training program for new hires. Show them they will be give the training and guidance they need to do a good job and advancement.
  • Institute an internship program, even for sophomores becoming juniors, as those students are clearly showing early interest and will be more likely to convert to employees.
  • Support risk management and insurance (RMI) education through direct recruitment at the programs, but also through scholarships and donations to the programs themselves.
  • Look outside your immediate geographic area for promising candidates. Many insurers limit recruiting to narrow geographic regions and don’t expose new hires to a full range of opportunities, nationally and internationally

All good advice to get the flow of candidates flowing!

Registration for the VCIA Annual Conference opens May 1st. We look forward to seeing many of you there for another excellent program!   Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Weather or Not

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It was recently reported that Strategic Risk Solutions Europe (SRS) has introduced a carbon emission risk program to be run in conjunction with Carbon Risk Solutions.  The program will initially involve a series of workshops where sustainability directors and risk managers are invited to learn how they can identify, manage and finance the carbon emissions risks their firms face in the transition to the low carbon economy with a range of insurance-linked solutions, including the use of captives.

Stuart King, president of SRS Europe, echoed what many have said of the broader insurance industry in confronting climate change and its associated risks: “The insurance market has been rather slow to respond to carbon risk transfer solutions for multinationals. We see an opportunity to develop these programs within captives and cells, while the commercial market develops and becomes more comfortable with this emerging risk.”

I think this bodes well for our mighty little industry. As I stated in a previous blog, captives are well placed to deal with the vagaries of climate change and risk, and that those who wait too long may be too late.

VCIA continues to address and explore this issue with a number of sessions at our Annual Conference this coming August 7-9.  Our session Natural Catastrophes and their Impact on Risk Management will feature experts  sharing information on the potential impact of natural catastrophes on  risk management from a variety of viewpoints including  academic, actuarial and risk management.

The expert panel for this session includes:

Gillian Galford, an Earth Systems Scientist at the University of Vermont and lead author of the Vermont Climate Assessment; Howard Kunst, Senior Modeler and Chief Actuary, at CoreLogic; Jason Shafer, Professor of Atmospheric Sciences at Lyndon State Colleges, who focuses on the valuation of weather information within the private sector; and Brad Waldron, ‎Vice President, Risk Management at ‎Caesars Entertainment Corporation.

Registration for the VCIA Annual Conference opens May 1st. We look forward to seeing many of you there for another excellent program!   Thank you and I look forward to hearing from you.

Next Gen

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So Millennials, welcome to the “name-that-generation” world. Starting with Baby Boomers, the X, Y and Z Generations, we humans can’t help ourselves when it comes to putting every generation in a neat, new box. And then the fun stuff comes: we older and “wiser” generations bemoan something about the work ethic or their shaving habits. Millennials have been described as everything from more self-centered to more worldly and charitable, and we in captive insurance need to understand this new “thing” if we want to fill our aging industry with new blood.

Well, I don’t buy it. Yes, every generation has its quirks and trends and signature “look” to some degree, but the young people I talk to who are looking at careers in the captive industry remind me why I have hope in darker moments. They are inquisitive, hardworking and want to help others. Yes, they want a better work-life balance, but who the hell doesn’t! In short, they remind me of every generation of young people looking to enter the workplace, make a mark and do good.  While every business and organization should strive to create a welcoming environment for newcomers, and look at crafting a new and better environment that works for all of us, let’s be careful about pigeonholing our younger colleagues and new entrants to our world. I would even suggest dropping the label Millennials and just treat them as the humans they are. After all, it will be their world tomorrow!

In the meantime, we do have a number of sessions at VCIA’s conference  August 7-9 focused on helping the next generation move into the world of captives, including Bridging the Next Generation of Leaders with Current Leaders, Presenting to Board/Management, and a Young Professionals Forum.

Registration opens May 1, so put it on your calendars!  Thank you and I look forward to hearing from you.

Blockchain Gang

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If you are like me, no matter how many times you see a You Tube video on how blockchain works – you think you understand it. Then someone asks you to explain it and all you say is, “you know, it’s a distributed ledger system” like you know what the hell that means… but I digress.

Some recent articles in insurance trade mags noted that insurers need to be thinking about blockchain technology, as well as virtual currencies like bitcoin, and how to approach these areas of emerging risk as they become harder to ignore.  As a quick reminder, blockchain is the technology used for verifying and recording virtual currency transactions through a shared database. And virtual currency, such as bitcoin, is an unregulated digital form of currency that can be used as a substitute for legally recognized currency and eliminates the so-called “middle-man,” which includes banks and clearing houses.

Because it has only recently become more prevalent, and the hazards of blockchain technology and virtual currencies are still being quantified, there is hesitation among insurers about whether these risks are insurable – which sounds like an opportunity for the captive insurance community.  One emerging risk in particular, developer errors and omissions, represents potentially the most critical risk that threatens the survivability of a blockchain startup. Given the concerns regarding data and privacy risk, coupled with the SEC taking a closer look at digital currencies and blockchain technology, insurers have shied away from this space.

On the flip side of the coin, blockchain has the potential to become a useful tool in the transaction of insurance in the coming years.

One such trial, Allianz Risk Transfer (ART) partnered with Ernst & Young and digital agency Ginetta to create a blockchain prototype solution.  Their prototype looks at three common process flows in the captive insurance cycle – annual policy renewals, premium payments and claims submission and settlement. It translates these processes into the distributed ledger environment decreasing the time from start to policy, policy to premium and claim to settlement.

Additional use cases focusing on first notice of loss, subrogation and parametric insurance are being developed as well.  ART is one of several groups involved in the development of distributed ledger technology for the insurance and financial services industries, as the insurance world grapples with this emerging technology.

Correspondingly, a new law in Vermont takes advantage of the blockchain’s ability to confirm that information transferred to it is authentic by presuming that documents written to the blockchain are authentic for purposes of any legal proceeding in a Vermont court. Once again, Vermont law is poised and ready for changes that may soon come to the forefront in the financial services industry.

All this presents an interesting dynamic on the future of captive insurance. Captives are leaders in these types of shifts in the insurance world so I would not be surprised to see us catch this new wave and ride it to success!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Hard Market, Schmard Market

chartThe siren song begins at the change of every year: based on historic losses in the year just ending, we can expect to see a hardening of the insurance market in the upcoming year. In fact, by all reports last year’s losses were high – Swiss Re’s preliminary sigma estimates for insured global losses resulting from natural and man-made disasters in 2017 are around $136 billion, well above the annual average of the previous 10 years and the third highest since sigma records began in 1970. Total economic losses soared in 2017 to $306 billion from $188 billion in 2016 primarily due to the three hurricanes—Harvey, Irma, and Maria—that hit the United States and the Caribbean, and wildfires in California.

The fact that we are seeing a “new normal” in loss rates certainly will be exacerbated by climate change – but that is a different story. To me, the story continues to be how even with last year’s near record losses, the insurance industry (which in the past would have triggered a substantive hardening of rates) has barely registered a blip.

One area we see this in is the reinsurance market. As stated in an article in Business Insurance, David Priebe, New York-based vice chairman of Guy Carpenter, said “Despite substantial catastrophe losses in 2017, the market demonstrated significant resilience with no notable capital withdrawal and moderate price increases.”

There are good reasons why the insurance marketplace remains so stable. Better loss control, better data, and more capital looking for a home have all contributed to this stability. And I would argue that the maturation of the captive insurance industry played a role by giving risk managers more options and flexibility.

Hard markets usually spark a corollary growth spurt in captive insurance formations. As prices harden, and insurance becomes more scarce, organizations form captives to fill the gap. But even without the hardening market, we continue to see growth in captive insurance. As Brady Young, president and CEO of Strategic Risk Solutions (SRS), told Captive.Com recently, he sees captives evolving in the future to be more of an offensive tool to support overall corporate strategies to serve customers and generate incremental profits. Brady also states, “captives can and will do more to reduce organizations’ overall cost of risk and squeeze out more of the inefficiencies of the traditional commercial insurance market… and in terms of specific lines of business or growth areas, captives will help solve the mismatch between the demands of companies and industries that have new risks and service models where traditional insurers struggle to provide the needed solutions.” He would know!

Next time I get asked by a reporter whether I think a hard market is coming our way, I will give them the same answer I gave at the end of last year: hard market, schmard market (which translates to not likely).

Speaking of Brady, come join us next Tuesday, February 6, in Atlanta where Brady and I will participate in VCIA’s world-famous Road Show outlining the advantages of captive insurance. We will be joined by Sandy Bigglestone, Director of Captive Insurance at the Vermont Department of Financial Regulation, Christy Williams, President of Green Mountain Sponsored Captive Insurance Company, Christopher Smith, President and Chief Executive Officer of MCIC Vermont, Inc. (A Reciprocal Risk Retention Group), and Ian Davis, Director of Financial Services for the State of Vermont.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Thank you and Congratulations!

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ICCIE-award-squareAs I wrote about in last week’s blog, VCIA hosted our annual Member’s Legislative Day in Vermont’s state capital, Montpelier, yesterday and it was a big success!

Our members, including many who came in from afar, got to hear from Vermont’s Lt. Governor, David Zuckerman, as well as Commerce Secretary Mike Schirling at our luncheon, and then later in the day from the Speaker of the House, Mitzi Johnson, the President Pro Tempore of the Senate, Tim Ashe, and finally from House Minority Leader Don Turner. Even though they represent different parties under the Gold Dome, what they do have in common is their unwavering support of the captive insurance industry in Vermont.

At lunch the Vermont State Economist provided a view of the State and national economy for members. VCIA and ICCIE board member presented the second ICCIE Fellow designation to Vermont’s own Kate Boucher from Premier Insurance Management Services. Congratulations, Kate, much deserved!

VCIA testified before House Commerce and Senate Finance on the captive bill that was introduced this week and to provide an overview of VCIA and the captive industry. Joining me was Ian Davis, Director of Financial Services for the State of Vermont, VCIA’s board vice chair, and Jan Klodowski, vice president for Agri-Services Agency, LLC, a subsidiary of Dairy Farmers of America.  As usual, Ian and Jan did a great job!

And finally, under the sure hands of Dave Provost, the House Commerce committee passed out this year’s captive bill with an 11 – 0 vote.
For a copy of the captive bill, please click here

Thank you all very much, and I look forward to hearing from you!

Rich Smith
VCIA President