Category Archives: VCIA 2019 Annual Conference

It’s a Hard Market

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OK, time to fess up. In a blog in February 2018, I dismissed the rumor that a hardening insurance market was on its way. As a matter of fact, I stated “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” – ouch!

Well, as we are all aware, the insurance market has certainly been hardening over the last year. Even though I still believe that the broader insurance market is more stable now, with better loss control, better data, more capital, and the maturation of the captive insurance industry, it is tightening. According to the second quarter 2019 Marsh Global Insurance Market Index, commercial property rates in the U.S. increased nearly 10% in the second quarter, which is twice the level of recent quarters.

And though the hardening market is impacting several different lines, I thought the explanation as reported in Business Insurance by Bret Ahnell, Executive Vice President of Staff Operations at FM Global, on property insurance (a large area in the captive marketplace) was instructive:

1.) The commercial property insurance industry has been losing money.  There have been declining rates industry-wide for more than a decade while carriers have offered broader coverages.  At the same time the industry has been contending with increased risk as a result of global economic expansion.  In fact, the property and casualty industry has been above a 100 combined ratio in 6 of the last 9 years. Only 2013-2015 were profitable, explained by extremely low losses from natural disasters.  Yet, when big natural catastrophe losses resulted from events, including hail, hurricanes, flooding, wildfires, and monsoons, the industry again posted losses in 2017 and 2018.

2.) Bonds markets have remained lackluster.  While investment yields in the stock market have been favorable during this time, the returns in the bond markets — which most insurers primarily rely upon for investment income — have remained lackluster.  The result is the industry hasn’t been able to use their investments to offset bad underwriting results. Carriers have had to adjust rates and coverages as needed to better ensure an underwriting profit.

3.) Regulators are gaining more sway in underwriting behavior.  The role of regulators is having an impact on underwriting behavior and discipline.  More than ever the insurance industry needs to be able to demonstrate sustainable business models and profitability across each line of business.

4.) New U.S. tax laws have increased tax liability while driving down profitability. Where previously carriers could write off 35% of a loss, today, it is only 21%, which ultimately means more selectivity when placing capacity.

It all adds up to a commercial property market that requires underwriting discipline and a continued correction over time. And, in this market, those clients who understand and commit to property loss prevention and risk engineering will do better than those who don’t.  That means captive owners will most likely be adding more to their risk portfolios.

On that cheery note, I hope you all have a wonderful and safe Thanksgiving!

Rich Smith
VCIA President

10-Day Countdown

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Just ten days until we open Burlington, Vermont to all you captive insurance professionals! If you have not already done so, please make plans to join us for a week of wonderful education, networking and friendship.

Here is just a smattering of some of the captive owners who will be presenting this year:

  • Andrew Baillie, AES of Global Insurance Company
  • Sean Barnes of United Educators
  • Julie Bordo of PCH Mutual Insurance Co., Inc., a RRG
  • Tracy Hassett of Educators Health Insurance Exchange of New England
  • Tim Herr of Recreation Risk Retention Group
  • Karen Hsi of the University of California
  • Jan Klodowski of Agri-Services Agency LLC & Agrisurance Inc.
  • Troy LePage of HAI Group
  • Heather McClure of Oklahoma University Medical
  • Bill Murray of Church Insurance
  • Tim Padovese of Ophthalmic Mutual Insurance Company (OMIC)
  • Joshua Reding of Life Time Captive Insurance Company
  • Paul Smith of National Insurance and Indemnity Corporation

I hope you all can join us! Click here to register for the VCIA Conference today.

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

Rich Smith

Young at Heart

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Young professionals

Young captive professionals at a recent VCIA event.

Recruiting and training the next generation of captive professionals is a paramount issue for our industry, as everyone knows. Both CICA and NRRA have programs designed to reach out to this group and draw them into the industry.  Fostering newcomers to join the field and eventually step into the roles of our current captive leaders and professionals is an initiative that VCIA takes to heart.

Over the past number of years, VCIA’s Annual Conference has created places and sessions where young professionals can learn from and network with both peers and seasoned professionals as they pick a pathway forward in the captive insurance field.  Besides our NEW Captive Immersion experience, which will familiarize those who are new to the captive industry on the key services, and our annual Captives 101 session that provides a basic overview of captive insurance companies and RRGs, other VCIA sessions designated for young professionals include:

Developing the Next Generation of Captive Industry Leaders, which will explore what is being done in the industry to attract and retain new talent.  According to the Pew Research Center, millennials were the largest portion of the workforce in 2016. As a group they are very connected, having grown up with the internet in their everyday life. In the workforce, they are eager to make a meaningful contribution to the workplace and the greater good. In many ways, this group is helping transform organizations.

Our Young Professionals Forum will provide a great resource particularly for those with fewer than 10 years of captive experience.  Three dynamic facilitators will lead small group discussions about sharpening your speaker skills, how to approach your early career years and work/life balance.  Afterwards, an open forum will occur for a fluid discussion on topics such as transitioning into the workforce, professionalism and meeting work demands in a sometimes-stressful environment.

On top of all that is just the best networking opportunities both “on campus” and “off campus” in the captive industry, so, I hope you all can join us! Click here to register for the VCIA Conference today.

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

From Early Bird to Angry Bird

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For all you procrastinators out there (and I count myself as one of the best) listen up! VCIA’s Annual Conference “early bird” rates are about to expire on June 30th. That means, of course, you will be paying more to learn and network with 1100 captive professionals from around the US and the world. And none of us like doing that.

Don’t take my word on it – look, here it is in black and white:

Registration Type

Early Price

Late Price
Full Pass: Member $750 $825
Full Pass: Non-member $1300 $1380
Networking: Member $465 $515
Networking: Non-member $890 $940

So, before the early bird changes into an angry bird, get on it! Click here to register today.

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

Rich Smith
VCIA President

Space…The Final Frontier

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Very cliché, I know, but still so true.

The fact that we now have a burgeoning space industry opens up opportunities for the insurance world. Most insurance companies offer some type of Space and Satellite Insurance which covers things like satellite launch and in-orbit, contingency, in-orbit third party liability, or some combination thereof.  But with space tourism becoming a reality in the not-too-distance future, captive insurance has an opportunity to play a role in the risk management of our last frontier.

The global banking firm UBS believes there will be very lucrative ramifications from the space flight efforts currently led by Virgin Galactic, SpaceX and Blue Origin, and stated that in a decade high-speed travel via outer space will represent an annual market of at least $20 billion and compete with long-distance airline flights. Space tourism will be a $3 billion market by 2030, UBS estimates.

UBS pointed to SpaceX’s plans to use the massive Starship rocket it is building to fly as many as 100 people around the world in minutes. SpaceX said that Starship would be able to fly from New York to Shanghai in 39 minutes, rather than the 15 hours it takes currently by airplane – pretty cool.  And even though space tourism is still nascent, UBS said they believe the sub-sector will become mainstream as the technology becomes proven and cost falls.

The legal risk of orbital space tourism is uncharted territory, and the liability risks to these companies could be huge.  Under current regulation, commercial passengers will have to sign an “informed consent” form to confirm that they recognize and accept the risks. This provision has been enshrined in US law by the Commercial Space Launch Amendments Act 2004. Such liability waivers remain untested in the courts.

Although there are large insurance firms looking at space tourism, it seems that there is a yawning gap for the liability coverage of the space firms. Captives have always done well with filling this void with targeted, bespoke coverage. So, brush off your old Star Trek DVDs and let’s hope that we have a panel at the VCIA conference in the next ten years devoted to the extraterrestrial!

For all you Trekkies out there we have the next best thing to Captain James T. Kirk: for our closing luncheon on Thursday at the VCIA Annual Conference the week of August 5th we have former astronaut Mike Massimino as our special keynote. He is a recurring character on The Big Bang Theory, a professor at Columbia University, the first person to tweet from space, and a New York Times best-selling author.  Mike will speak of pursuing his passion and tell incredible stories about his experiences in outer space manning space missions. Having one of the most dangerous jobs in the world, Mike will speak of the teamwork and problem-solving skills needed to train for and accomplish one of NASA’s most difficult space missions. Don’t miss this fun closing event!

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

Rich Smith
VCIA President

Learning Circles

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When I talk to folks who come to the VCIA annual conference every year, I always ask them what they find most compelling about it. Often cited is the education provided by our VCIA panelists who represent some of the most prestigious organizations in the world. Sometimes it is that the conference is a great source for captive career development and networking or earning CPE / CLE / ICCIE credit.

One of the most compelling reasons to come to our conference is the peer-to-peer learning that attendees receive from the almost 1100 captive professionals that come each year. This year we are trying to enhance that relationship. We are organizing peer groups to come together and share thoughts, issues and questions in what we are calling Learning Circles.

In a Learning Circle, you’ll share your learning experience with up to 8 peers, who’ll do the same for you. An appointed Ambassador will act as a guide to help facilitate and support the process. Your Learning Circle is an adventure you’ll experience together on a mutual quest to dive deeper and apply the vibrancy of ideas and innovations you’ll encounter at VCIA’s Annual Conference.

The goal is simple: Enrich your VCIA journey with insights and experiences from your fellow Learning Circle members. Come prepared with subjects you would like to discuss. Through this process, you’ll discover the value of gaining new perspectives and ideas from fellow circle participants while developing connections with new peers.

So, come join us for the VCIA Annual Conference August 6 – 8th (with Captive Immersion August 5th), and think about signing up for one of our Learning Circles – you will not regret the knowledge you can gain, and the new friendships you will make!

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

Rich Smith
VCIA President

Captives Are Always Trendy

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I read an article recently in Risk & Insurance about three trends that will disrupt the insurance industry in the next decade. The article interviewed Assaf Wand, CEO and co-founder of Hippo Insurance, about what trends he expects to play out over the next five to ten years.  And while there has been much written about these types of trends (including here in this wonderful blog) Wand reminded me why captive insurance really surfs these trend waves very well.

  1. Nontraditional players will enter the market in force.

Sure, the article is focusing on the news that retailers like Amazon and Walmart will become more active in the insurance world with their huge presence and direct connection with their consumers. Things like travel insurance, shipping, potentially marine on the commercial side could be the next frontier for these behemoths according to Wand. Captives, however, are the original “nontraditional” players in the insurance market going back decades. And looking ahead, captives are well positioned to take advantage of emerging opportunities such as automakers insuring risks from driverless cars.

  1. An explosion of data will change the underwriting equation.

“Data sources are going to keep on multiplying on an ongoing basis, and we don’t necessarily know what those sources will be. [Insurers will] become much more data-centric,” Wand said in the article.  That is certainly true. One of the primary tenets of the captive insurance industry is that the data from the risk management feeds directly to the captive owner(s). Owning and understanding one’s data is paramount to the success of the captive and has provided the impetus for lowering risk profiles and thereby cost savings. New technologies, including AI, will give captive owners that much more power to contain risk and save money.

  1. Insurers will shift value to more proactive risk management services.

This is not a new trend in the captive insurance industry: this has been the KEY to its success for over 35 years. As the article rightly points out, in most insurer-insured relationships, there are few touch points between binding a policy and policy renewal besides a claim, should one occur. Here Wand points out the “new” approach that the traditional insurance industry must adopt in order to survive: create more touch points and find ways to add more value to that relationship in the form of risk management services. This enhances the customer experience and also reduces the likelihood of a claim. Fewer claims should ultimately mean more profits for the insurer and cheaper policies for the consumer.

“The shift will be a refocus back on the customer,” Wand said. Sound familiar?

Some of the strategies outlined are things the captive insurance industry needs to keep focused on as well. New insurance technologies include the use of aerial imagery to identify discoloration on roofs well in advance of a leak, so that a roofer can come assess and repair before anything goes wrong.  Or the use of weather data to ascertain the strength of storms heading your way in order to send in specialists to help strengthen vulnerable spots on your property.

Essentially, the traditional insurance marketplace needs to adopt a more “captive” approach in the next decade. Maybe they will, maybe they won’t. Captive insurance will always be one step ahead of the traditional side – after all, the connection between the insureds and insurers can’t get any closer!

Come hear more about insurance trends at the fast approaching VCIA Annual Conference August 6 – 8th (with Captive Immersion August 5th).  Laura Drabik, Group Vice President of Business Innovation for Guidewire Software will speak about disruption, technology and innovation in the insurance industry at our opening general session, and it is sure to be fascinating!

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

 

Cool Captives from Vermont

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I just returned from Chicago where I was a guest of the folks from Strategic Risk Solutions at their annual client symposium. It was a great 1 ½ days of education and networking with the captives, service providers and staff of SRS (many Vermonters, of course!).

I was asked to speak on a panel with regulators from a variety of captive domiciles on the way Vermont regulates captives, specifically the examination process. Hardly my expertise, but as you all know, I am always game!

At the lunch on Wednesday, SRS President & CEO Brady Young recognized three of their clients for the innovation they all employed in their captives. All three were Vermont captives naturally! They were Agrisurance Inc., whose parent company is Dairy Farmers of America (DFA), the largest co-op in the country and fourth largest worldwide; Maple Red Insurance Company, captive for Turner Construction, one of the largest construction management companies in the United States; and ProMutual Solutions/Axial Benefits Group cell programs. 

Congratulations to you all, and congratulations to SRS for a very successful event!

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

Rich Smith
VCIA President

Playing Well in the Insurtech Sandbox

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Legislation to enable insurtech experimentation and innovation in Vermont is on its way to the Governor’s desk for his signature. In the next week or so, Governor Phil Scott is expected to sign the insurance and securities bill (S-131).  Among other things, this bill creates an insurtech “sandbox” which will allow more R&D in this area with specific guidelines. It also updates Vermont’s surplus lines laws.

The regulatory sandbox in S-131 will provide the flexibility necessary to accommodate new concepts at the same speed as insurance technology develops. It does so by lowering or eliminating the hurdles facing this sector in bringing developments to market amid an insurance regulatory landscape that does not always accommodate such development. Not everyone will be able to play in the sandbox environment, as eligibility criteria limits the number of clients and a limited time period for the developers is part of the package. Overall, though, it’s a great step forward.

Earlier this year, Commissioner of Financial Regulation Mike Pieciak and Secretary of State Jim Condos signed a memorandum of understanding outlining their collaborative efforts to explore emerging blockchain technology and its use in the digital recordkeeping practices of the captive insurance industry.  They jointly issued a Request for Information (RFI) to identify vendors that may work with the State to launch a pilot program allowing new captive insurance companies to register with the Secretary of State using blockchain technology.  The pilot program will help the state identify areas where the use of blockchain technology in regulatory and other government business may increase data security and reduce costs for residents and those doing business in Vermont.  There were more than 20 submissions which the department is currently reviewing.

The support of the insurtech sector and the blockchain pilot program are great examples of Vermont’s openness to technology trials and innovations in our State, and Vermont’s awareness that the insurance industry as a whole is ripe for innovation.

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

Rich Smith
VCIA President

Give Peace (Church) a Chance

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My thanks to Phil Leaman and his board of directors at Peace Church Risk Retention Group (a reciprocal) for inviting me to join them for their meeting in Vermont last week. Phil is COO of Peace Church RRG, and spoke at VCIA’s recent Road Show in Philly.  Peace Church is part of a larger umbrella organization that provides services to approximately 140 organizations with programs for aging, disability and behavioral health.  Phil is also an active member of VCIA’s Legislative Committee and participates first hand in VCIA’s legislative and regulatory efforts.

I was on the panel with two absolute pros from Vermont’s Department of Financial Regulation captive insurance examination office, Dan Petterson and Heidi Rabtoy. We gave an overview of DFR’s regulatory regime, VCIA’s activities on behalf of our members, and how both organizations work cooperatively for the industry.  What a great opportunity for the State and VCIA to get directly in front of a captive board to report on our activities and take their questions! I think they left with an even better feeling of being domiciled in Vermont and being a member of VCIA than when they arrived – at least I know I did!

In speaking with Dan and Heidi afterward (and Deputy Commissioner Dave Provost), we all agreed we would welcome other opportunities to get before captive boards of directors.  So, keep us in mind for your next captive board meeting in Vermont. Having us there makes Vermont look good and can make you look good, too!

On another note, thanks to everyone who came out Wednesday afternoon and evening for VCIA’s Board Meeting and Annual Spring Mixer. The evening on the deck of the Burlington Sailing Center overlooking Lake Champlain was absolutely gorgeous. Add in good food and drink, and great friends, and it was a super event! Thank you to Johnson Lambert LLP for sponsoring the mixer.

 

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

Rich Smith
VCIA President