Let the Games Begin (and Congrats Vermont – Again)!

sov flag

The Vermont General Assembly began the first half of the legislative biennium this month. Both houses of the Vermont legislature now have a supermajority of Democrats, so Governor Scott (R) will have less room to push back on any legislation he doesn’t support. That being said, the House Commerce Committee’s new chair is Mike Marcotte, a Republican and former vice chair of the committee. Senate Finance remains in the hands of veteran Ann Cummings; both these committees oversee captive insurance in Vermont and both are strong captive insurance supporters.

As we do every year, VCIA initiated a process to build an agenda for suggested changes to the captive statutes for the 2019 legislative session.   With the results from our membership survey in hand, we meet with  Vermont’s captive management firms and law firms to hear their suggested changes. Then comes an iterative process with Dave Provost’s team at Vermont’s Department of Financial Regulation resulting in a consensus bill to present to the legislature. This year’s captive bill will be mostly tweaks and technical corrections, but even those are important in staying current in our ever-changing industry.

On another note, congratulations again to DFR and the State of Vermont! For the fifth straight year, Vermont was ranked the BEST  insurance regulatory environment in the United States, according to the R Street Institute’s  Insurance Regulation Report Card, an annual examination of which states best regulate the business of insurance.

Don’t forget that January 23rd  is VCIA’s annual Legislative Day in Montpelier, Vermont’s capital. It’s a full day of meeting and hearing from Vermont’s political leaders on the captive industry and issues facing the State broadly. Go to www.vcia.com and register today!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

The Great Wall and Beyond

IMG_1615

As I mentioned in my last blog, I traveled to China right before the Thanksgiving holiday to speak before the 2018 Jing-Jin-Ji International Insurance Forum in Tianjin. My presentation focused on the introduction of Vermont’s captive market, development and supervision. I also participated on a panel that discussed the captive rules in Asia, U.S. and Europe, best practice and the latest innovation, with insurance supervisors from Hong Kong, Singapore and Guernsey as well.  I focused on how Vermont regulators create a “partnership” with the captive insurance companies while keeping a strong regulatory hand on the tiller. I emphasized the support from Vermont’s political leadership as well. This message was well received by my Chinese captive insurance colleagues.

IMG_1613It was a great trip, especially to see and hear how the China captive market is emerging. As I mentioned last time, there is a relatively small number of captives in China right now – and mostly held by state-owned enterprises (SOEs) like COSCO shipping, Sinopec and China Railway. However, there is a growing interest in captive insurance for private enterprises and other SOEs looking to better manage their risk.

The Chinese captive industry is very limited in scope right now. Like most regulators when presented with a new-fangled way of doing business, the China Banking and Insurance Regulatory Commission is taking a go-slow approach to captive insurance. The industry in China is looking to pick up steam and get interested parties from privately owned businesses to consider captives. They are also interested in helping move Chinese regulators to broaden the limits on captives currently in place.  And while it may be a long-shot to get a Chinese captive to domicile in Vermont, the fact that they are looking at VCIA as a place to learn illustrates the continued leadership of Vermont in the growing worldwide industry.  I look forward to continuing this dialogue and seeing how the Chinese captive industry evolves.

IMG_1614I want to thank in particular my colleague Geoffrey Cao, President of the Chinese Captive Insurance Association, who invited me over and played gracious host while I was in China. And a HUGE thank you to Christina Kindstedt, Senior Vice President of Advantage Insurance Management (USA), who provided a go-between with me and my Chinese counterparts, as well as helping with my trip every step of the way.  Thank you both so much!

I look forward to hearing from you!

Rich Smith
VCIA President

Off to China!

the-great-wall-2190047_640

I am very excited to be heading off to China this week. At our conference this past August, VCIA hosted a delegation from China, including the head of the Chinese captive insurance association and the risk manager from COSCO, China’s enormous shipping company. Andrew Baillie, who runs the captive for AES (and a recently minted VCIA board member) moderated the panel with our Chinese guests with the able services of Christina Kindstedt of AIM providing translation services.

The Chinese delegation was so impressed with our conference that they invited me to join them this week in Tianjin on a panel at the 2018 Jing-Jin-Ji International Insurance Forum.  The topics on the panel will include the captive rules comparison in Asia, U.S. and Europe, best practice and the latest innovation. They have invited insurance supervisors from HK, Singapore, Malaysia and Guernsey to join the panel as well. They have also arranged a solo report for me on the introduction of the Vermont captive market, development and supervision.

Right now, there is a relatively small number of captives in China – and mostly held by state-owned enterprises (SOEs) like COSCO. However, there seems to be a growing interest in captive insurance for private enterprises and other SOEs looking to better manage their risk.  And while it may a long-shot to get a Chinese captive to domicile in Vermont, the fact that they are looking at VCIA as a place to learn illustrates the continued leadership of Vermont in the growing worldwide industry.

As they say in China: 我期待着您的回音

(I look forward to hearing from you!)

Rich Smith
VCIA President

Rocky Mountain High

Rich-Denver

First, shame on you for thinking I was going to milk our VCIA Road Show to Denver next week with some type of cannabis-related pun or joke. John Denver television specials were a big part of my memories growing up, of course.

Second, yes we will be in downtown Denver on Wednesday, November 7th with our Road Show, at the IMA Corporate Office. Starting at 1:00 local time we will spread the good word about captive insurance to folks in the Mountain Time Zone.  The Original Captive Insurance Road Shows are structured for the maximum education and networking that four hours will allow. The afternoon includes two educational seminars featuring captive owners and captive professional panelists including the Vermont Deputy Commissioner of Captives, who document their companies’ experiences in forming and operating a Vermont captive. Our two owners are a couple of old hats at this game (I could get in trouble for calling them old hats).

Jan Klodowski is the vice president of Agri-Services Agency Inc. a wholly owned subsidiary of Dairy Farmers of America. She is the administrator for Agrisurance Inc., a Vermont domiciled Sponsored Captive that provides Workers’ Comp and Health coverages for the farming and agricultural industry in the United States. Part of Jan’s responsibilities includes the development and management of successful Captive/Alternative Risk Financing programs for their members. Jan is a licensed Insurance Broker and holds the designations of Associate in Captive Insurance and the Associate in Risk Management.

And Heather McClure is an executive director of operations at OU Physicians. She is a licensed attorney in Oklahoma and Texas with an LL.M. in Health Care Law. Heather has worked exclusively for hospitals and physicians for over 20 years. She is responsible for risk management, professional liability, and patient safety for the multi-specialty academic medical practice, which includes partnerships with multiple hospitals across Oklahoma and encompasses nearly every adult and pediatric specialty as well as 72 ambulatory clinics. Heather is also the Chief Operating Officer of OU Physicians’ captive professional liability insurer, Academic Physicians Insurance Company, which covers approximately 750 faculty physicians, 700 resident physicians and 700 medical students at the University of Oklahoma College of Medicine.

The afternoon wraps up with a networking reception for all attendees. CPE / CLE credit available for seminar participation. VCIA members and nonmembers alike who have captives, serve captives or are exploring the formation of captives are invited to attend!  Go to www.vcia.com to get more information and register.

I can’t wait to feel the sunshine on my shoulders!  Ah, the grass is always greener…

Rich Smith
VCIA President

What the Heck is GDPR and Why Should We Care?

GDPR

GDPR… sounds like a former communist country in Eastern Europe. But it is a recent development in cybersecurity that could impact us all; especially if your captive has European connections. And, as reported in Business Insurance in June, GDPR-like regulations could impact the US through a new California law.

The European Union’s General Data Protection Regulation, which took effect May 25, is a regulation in EU law on data protection and privacy for all individuals within the European Union and the European Economic Area. It also addresses the export of personal data outside the EU and EEA areas. The GDPR aims primarily to give control to individuals over their personal data and to simplify the regulatory environment for international business by unifying the regulation within the EU.

The regulation contains provisions and requirements pertaining to the processing of personal data of individuals inside the European Union, and applies to an enterprise established in the EU or—regardless of its location and the data subjects’ citizenship—that is processing the personal data of people inside the EU. With the prominent cyber hacks of Facebook and others, this type of regulation is gaining traction in the US.

California recently passed the California Consumer Privacy Act, which reflects some of the GDPR’s provisions, and is likely to be followed by other states. To the extent firms do business in California, they would be subject to the proposition.  While large companies that do business in Europe are already complying with the GDPR, passage of the California proposition would mean additional costs for smaller firms that do not operate internationally, as reported in Business Insurance.

Most experts say they do not anticipate there will be federal legislation on the issue, at least in the immediate future.  And if this type of data protection policy is pursued, the hope is regulators in the United States will continue to follow what he views as the more effective partnership mode, with industry and the government working together on the issue of privacy, rather than following the GDPR’s model.

On a separate track, the NAIC’s Insurance Data Security Model Act is in the process of being adopted by states, albeit fairly slowly. The model law establishes standards for data security and investigation and notification of a data breach in the insurance industry and applies to licensees, which includes not just insurers, but agents, brokers and other parties.

Data security is no doubt a real issue – and one that demands strong measures. It is usually rated the number one or number two risk worrying most CEOs these days. Since most of the data from a captive insurance company is its owners, we need to make sure any data security measures are commensurate to the size and scope of the risk. VCIA takes this very seriously and will continue to champion the right balance for responsible security regulations – wherever they come from. That being said, everyone in our industry needs to take a hard look at data touchpoints and what they are doing to properly protect them.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Fred Hackett 1933 – 2018

fred hackett

An early photo of Fred Hackett, in the 1980’s, second from left. Fred was instrumental in the foundation of the captive industry in Vermont.  (From left to right: VCIA Members and captive industry participants Julie Boucher, Fred, Mark Boll, Kathy Davis and Dan Labrie.) 

Former Vermont captive insurance founder and director of VCIA, Luther “Fred” Hackett, died of Alzheimer’s disease on October 8, 2018 at the Wake Robin Continuing Care Retirement Community in South Burlington, Vermont.

After graduating from the University of Vermont in 1955, he served in the Air Force before returning to Vermont to join his father in a new insurance business. He was Chairman of Hackett, Valine and MacDonald Inc., Champlain Captive Management, Inc. and Benefit Investment Advisors, Inc. He was an advisor to the Vermont Captive Insurance Association Board in the early era of the captive industry in Vermont.

In 1965 Fred was elected to the Vermont House of Representatives from South Burlington. He served on the Appropriations Committee, and as Chairman from 1969-1970 and served as republican majority leader from 1967-1968. He was Chairman of the Joint Fiscal Committee of the Vermont House and Senate in 1969. In 1972 he won the Republican Primary for Governor. He lost the Governor’s race to Thomas Salmon in the general election.

Fred was an environmentalist. He proudly assisted with the legislation in 1969 for preservation of certain land abutting the Camel’s Hump State Park, creating a state-owned Forest Reserve that formed Camel’s Hump State Park. He was instrumental in the creation of ACT 250 and heavily involved with the Clean & Clear Task Force for Lake Champlain.

Fred was a sixth generation Vermonter and spent most of his life building a business and aiding ventures he felt would make a positive difference to the future of his beloved State of Vermont. Over the many years Fred received numerous awards and recognition for all he did for our state, but I remember him as a man willing to give excellent advice to an upstart in Vermont (that would be me) with no trace of condescension, and being treated as an equal. I believe that graciousness and community spirit has been successfully imprinted on Vermont’s captive insurance community.

If VCIA had a flag, it would be lowered to half mast today. Thank you for all you did, Fred.

Rich Smith,
VCIA President

Credit Risk

Rich-monopoly-manWith the renewed tension between the US and China, well, lets’ face it, the World, on trade issues, it’s a good idea to look at a captive to help mitigate such risks. President Trump just announced $250 billion dollars in tariffs targeting Chinese products, on top of previous tariffs already announced. One could argue whether it’s a good policy or not, but the facts that there will be increased risks in international trade is a fact.

As countries ratchet up the rhetoric and retaliation, insurers are weighing how companies will deal with the pressure. Trade credit insurance protects companies from the risk that buyers will be unable to pay. If governments implement more tariffs, it could increase the cost of production and ultimately put stress on retailers and distributors to either raise prices on consumers or shrink profits. If the stress is enough to put the buyer out of business, the supplier would activate its trade credit insurance to get reimbursed for defaulted payments, for example.

As reported in Insurance Business America in June, the potential failure of an agreement on NAFTA also presents risks. If NAFTA fails or is dramatically renegotiated, companies will be forced to redraft their production models and their supply chains. That will take a lot of money, time and could significantly increase their credit risk.

Forward-thinking organizations with international exposure are now seeing the benefits of bringing their own captive insurance company into the equation as a way to control the risks. Thus, trade credit and political risk are joining the growing list of non-traditional lines that captive managers are now using to better leverage the benefits of their captive.  Structured many ways, using a mix of fronting and reinsurance, some of the benefits could be:

  • Diversification of the captive into trade credit risks, which are not historically correlated with property and casualty risks
  • Additional premium flow into the captive and resulting investment income
  • Non-cancelable trade credit insurance coverage
  • An additional set of experienced eyes on the credit risks that the customer is taking onto its balance sheet

Ultimately, trade credit insurance can help companies apply longer-term risk management strategies. However, the continuing trade war puts every part of the economy at risk, and any trade risk insurance can only help so much.

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

Rich Smith
VCIA President