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Failure Matters as Much as Success: A Captive Start-Up Journey

Captive Journey
April 29, 2016

Those in the captive insurance community who may be down and out because of "failure" in starting or operating a captive insurance company will find encouragement in coeditor John Salisbury's personal story, which he shares below.


As an executive in the association world for 15 years, I had the opportunity—among other responsibilities—to lead efforts to create and operate group self-insurance workers compensation, law enforcement liability, income protection, unemployment compensation, self-insurance, and healthcare insurance administrative services programs. Because of this, I became interested in redirecting my career to focus on group self-insurance. I decided to resign my position and join a management consulting practice that I had started a couple of years before.

When I joined the management consulting practice on a full-time basis in 1979, the firm was an administrative service provider for two group unemployment compensation self-insured programs. One served municipalities and counties, and the other served school systems. I knew from my prior association experience that state statutes did not specifically permit public entities to develop or participate in group self-insurance property and casualty programs. Even so, I wanted to find a way for schools and municipalities to achieve what I believed would be substantial savings from joining together to insure their risks and improve their risk management practices.

My research and consultation with legal counsel confirmed that my objective could be accomplished by creating a mutual insurance company that was owned and controlled by its insureds—a "captive." Great news, but could public entities capitalize such an endeavor? The answer to that question was a resounding no. However, more research suggested that such a company could be capitalized by surplus notes. After reading the only resource on self-insurance and captives that I could find, I made the decision to seek experienced professional insurance consulting help from Johnson & Higgins and Tillinghast. The consultations helped with the development of a business plan with an actuarial report to form a mutual insurance company and obtain insurance department approval.

Following the development of a business plan, the next and perhaps the greatest challenge was to find a bank to provide a $500,000 surplus note at a rate that did not exceed the statutory limitation that I recall was 10 percent. After multiple bank presentations, a surplus note was obtained. The professional insurance team supporting this initiative and my previous success with group self-insurance programs made this possible.

The consultants supporting the initiative and I soon discovered that not every new idea meets with success. The business plan was filed with the insurance department, and a public hearing was scheduled. Then the fireworks started.

The state independent agents association informed its membership of the hearing and strongly opposed the approval of the application. There is no need for me to detail all of the efforts that were made to influence the regulatory decision. I was informed by general counsel and bank representatives the opposition went as far as to threaten withdrawal of their bank accounts. 

The insurance department was skeptical of the captive concept and ultimately disapproved the application. This was both psychologically and financially a significant failure for me. That was the initial outcome of the public hearing, backroom lobbying, and threats.

But there was a second and more important outcome, which has proved to be the most important and enduring. The research and the development of a business plan for the prospective school captive provided me with a foundation for subsequently helping with the successful development of business plans and start-up of several group captives: NLC Mutual, Housing Authority Risk Retention Group, Housing Authority Property Insurance, and Government Entities Mutual.

The message of my story—and I hope your story, as well—is failure matters as much as success.


If you have a story about your captive insurance industry experiences, is interested in sharing it with our readers. Send a copy of your story to John Salisbury via e-mail, or use the Contact Us form. (Stories will be edited for content and length.)

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