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Vermont's Captive Conference Is Part of a Thoughtfully Woven Tapestry

VCIA Rich Smith
June 27, 2018 recently crossed paths with Rich Smith, president of the Vermont Captive Insurance Association (VCIA), to discuss its annual captive conference, happening August 7–9 at the DoubleTree by Hilton, Burlington, Vermont. True to this year's conference theme, "Where the Captive World Comes to Meet!" VCIA will host 1,100 people from all over the world to experience its high-quality educational offerings and take advantage of its numerous networking opportunities. Nearly 100 companies exhibit at VCIA, featuring the newest industry product and service developments. Mr. Smith reminds readers to register online now so as not to miss out on this major captive event.

Vermont passed its captive insurance legislation in 1981 and was the first US state to be competitive with offshore captive domiciles. Now, more than 3 decades later, tell us how the VCIA and the conference have played a part in the domicile's history.

The first few years after Vermont passed the captive insurance legislation, VCIA got to work organizing the nascent industry here in the state. Our first few conferences consisted of less than a dozen folks for a half-day session in a back room at a local hotel. That small start, however, was the germ for a successful model of cooperation and collaboration between regulators, policy makers, and the industry that has made Vermont a world leader in captive insurance.

Today, with over 430 member organizations, ranging from Fortune 50 companies to regional hospital nonprofits, VCIA has the clout to positively influence regulations and legislation—not just in Vermont, but in Washington, D.C., as well. Every year, without fail, VCIA works with state leaders and regulators to bring a bill to the Vermont General Assembly that strengthens and modernizes its captive statute to keep in the vanguard of this ever-evolving industry. It can be as simple as aligning reporting dates, streamlining the exam process, or eliminating regulations that have become outdated to adding new captive categories such as agency captives to the list of approved captives in Vermont, opening up the dormant captive provision to all captives, and our first-year tax credit increased to 2 years. The trust and cooperation between VCIA and regulators gives Vermont legislators the confidence to move legislation quickly and efficiently for the good of the industry.

Although VCIA remains focused on Vermont, an ever-increasing amount of attention has shifted to activities in Washington. On behalf of its member companies and the industry at large, VCIA works diligently to keep the captive industry strong. No other captive association has day-to-day representation in Washington, and no other captive industry organization plays such a large role in legislative advocacy. Whether it is working to eliminate threats to our industry by legislation and regulation—most often based on ignorance of the captive industry—to working with the US Department of Treasury to streamline reporting requirements for captives in the Terrorism Risk Insurance Program, VCIA is front and center.

From its humble beginnings, the VCIA Annual Conference has grown to over 1,000 captive professionals descending on Burlington every summer for 3 days of the best in captive education, networking, and collaboration. The conference has grown steadily and flourished into a vibrant, energetic event attracting the industry's very best and brightest.

What are some of the current Vermont captive industry facts, figures, and statistics that are the most impressive?

Certainly, the 578 active captives at year-end 2017 makes Vermont not only—by far—the number 1 US captive domicile; it also is the world's third-largest captive domicile. However, there are a number of important facts that sometimes get lost. Vermont has the highest premium volume and assets under management anywhere in the world, with $32.8 billion (estimated) in gross written premium in 2016—the most of any domicile—and over $200 billion in assets. Forty-eight of the Fortune 100 and 18 of the Dow Jones 30 companies have captives in Vermont, which is a testament to the fine regulation and services our domicile provides the industry.

There are over 100 healthcare-related captives licensed in Vermont and over 90 risk retention groups (RRGs), with over 60 percent of all RRG gross premium written and more than 5 times the next largest domicile. While Vermont has some of the largest captive companies in the world, more than half of Vermont's captive insurance industry writes less than $5 million annually in premiums. This makes Vermont one of the best places for smaller and mid-cap businesses to form captive insurance companies. Captive insurance is no longer an "exotic" risk transfer mechanism limited to large Fortune 500 companies.

As mentioned earlier, VCIA attracts over 1,000 captive insurance professionals to Burlington every summer for our annual conference, making it the largest captive insurance conference in the United States. What is unusual about the conference compared to other captive events is that over one-quarter of attendees on average in the last few years have been captive owners. And our conference evaluations remain consistently high with 84 percent of those responding rating the 2017 conference the best or better than most. Evaluations tell us that the vast majority of attendees enjoyed the conference immensely and that it is a good investment of their time and money. Everything from the learning formats to the interactivity of the events was held in high standing.

Vermont regulators are known for their deep understanding of captive issues and their accessibility, which has contributed to the domicile's success. What else can you tell us about the captive regulatory environment in Vermont that makes it successful?

I think the depth of knowledge and experience of Vermont captive regulators is beyond repute. What this means to you is that applications are processed quickly. Exams are done cost effectively and by experienced examiners, minimizing your cost and your time. It also means that business plan changes are done quickly—most in a matter of days or quicker if needed.

But what I think surprises many professionals in the captive insurance industry is just how approachable the regulatory team is here in Vermont. We often laugh because, unlike other state regulators, Vermont captive regulators actually answer the phone! You can run "crazy" ideas by Deputy Commissioner Dave Provost, Director of Captives Sandy Bigglestone, or one of their team members and get their straightforward feedback without feeling self-conscious.

This feeds into their own entrepreneurial mindset as well. Many of the innovations that keep Vermont in the forefront of the captive industry germinate from the regulatory team at the state. A few years ago, the concept of putting your captive into dormancy came from Dave's team. A captive can enter into an inexpensive dormant status as an alternative to dissolution, which would address the situation where a captive outlives its usefulness to its parent company and is dissolved with the intent to return if the need arises in the future at little cost.

Just this year, the Vermont Department of Financial Regulation led the effort to pass legislation that would offer an onshore affiliated reinsurance alternative to insurance companies affected by the recent imposition of the Base Erosion Anti-Abuse Tax (BEAT) on reinsurance ceded to offshore affiliates. Vermont's new law provides a solution by creating a more favorable reinsurance alternative for US companies conducting business in offshore jurisdictions that are now faced with a substantial new tax burden.

Considering the increased competition from other jurisdictions, what keeps Vermont thriving today, and what will keep it thriving into the future?

I think the success of Vermont in the captive insurance industry currently as well as into the future rests on a three-legged stool.

  1. Laws and regulations that keep pace with industry needs. With unwavering gubernatorial support since the beginning, regardless of which party is in power, and a legislature that actually understands the industry and seeks ways to strengthen it in the state, the political and policy elements are aligned in Vermont.

  2. An infrastructure made up of the world's leading captive management professionals, attorneys, bankers, accountants, actuaries, and investment managers and the largest captive trade association, the VCIA. Regardless of whether your captive is domiciled in Vermont or not, it's rather likely that your captive expertise is based in Vermont—making it a world "Center of Excellence" for captive insurance. Further, VCIA's conference every year attracts captive owners, service providers, and, yes, regulators not based in Vermont but who want the very best in captive education and collaboration.

  3. And finally, as we have discussed earlier, the most experienced and knowledgeable regulatory team anywhere. Vermont has never rested on its laurels in the quest to better operations and increase efficiency through firm yet flexible regulation.

The conference schedule provides a diverse profile of sessions and networking events. The session topics range from basic to advanced. How can new captive owners and new insurance professionals attending the conference distill their options down to get the most out of the event?

VCIA provides many ways new entrants to the captive insurance world can find their best VCIA conference options. Each educational session is labeled as Basic, Intermediate, or Advanced with a session description providing the information necessary to match an attendee with his or her skill level.

The first day of the conference, there is a great Newcomers Orientation for those who have never attended the conference with guidance from some of our veterans on how to maximize the conference experience. Following that session is our Captive 101, which gives a solid foundation on the many benefits of captives, why they are formed, and how they are successfully managed.

The VCIA Ambassador Program was developed to directly link newcomers to conference veterans for one-on-one assistance and guidance. There is an Ambassador Lounge in the Davis Center for newcomers to be able to sit down with VCIA Ambassadors to get the lay of the land and have any questions answered.

All conference information is easily located on the VCIA Conference App, which will help keep newcomers informed on all conference activities.

We see a young professionals forum and a succession planning session listed on the conference schedule. Tell us about this and other initiatives that the VCIA is taking to nurture new talent in the captive industry.

Every year, we survey conference attendees to get feedback on what can be improved or added to make the conference better the following year. One of the suggestions made by many of our younger captive folks was to provide professional-development-type sessions for those newer to the industry. This was the catalyst for our new "Young Professionals Forum" as well as "Bridging the Next Generation of Leaders," "Great Ideas for Presenting to a Board," and "The Art of Relationship Building."

Outside of the sessions, too, there is ample opportunity for young professionals to network with more experienced captive professionals throughout the week. Along with two VCIA evening receptions, networking lunches, breakfasts, golf, and social outings, there are also non-VCIA-sponsored social gatherings in beautiful downtown Burlington and along the waterfront.

Outside the conference, VCIA works with our members to find fresh ways to get the word out about captives to the next generation. We host our captive insurance Road Show in two cities every year where we invite local risk management students (along with local business leaders) to an afternoon of 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.

We are currently exploring new ideas that will connect to the risk management and insurance programs at major universities in the country and create a forum for them to learn and appreciate the opportunities in the captive insurance industry.

The schedule lists sessions on blockchain and artificial intelligence (AI). In terms of the current demographic shift and technological advances facing the insurance industry, what are your thoughts on how the evolving insurance landscape will shape up for captive insurance?

We have several future-oriented sessions this year, including "Integrated Solutions: The Future of Risk Management," "The Cognitive Captive: Artificial Intelligence for Smarter Insurance," and "Blockchain & Distributed Ledger Technology." Blockchain and AI have the opportunity to completely change the landscape, both for insurable risks as well as how we manage all risk.

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 Securities and Exchange Commission taking a closer look at digital currencies and blockchain technology, traditional 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. New prototypes are looking at a number of process flows in the captive insurance cycle—annual policy renewals, premium payments, and claims submission and settlement, for example. Additional use cases focusing on first notice of loss, subrogation, and parametric insurance are being developed as well.

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.

The future of AI in insurance, and indeed in the world as a whole, has created polar-opposite responses. Some view AI as a quantum leap in efficiency that should bring down costs and make the world a better place, while others believe it will be the doom of mankind or at least of the insurance business as we know it.

The bigger story may simply be that computers are making insurance more precise, which sounds good, but less human, which sounds scary. 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!

Our keynote speaker at the VCIA Opening Session on August 7, Jack Uldrich, is a global futurist and will address these topics and their potential impact on our industry.

Looking forward, does the VCIA envision changes to future conferences in terms of format, venue, or content?

We are always looking for ways to update the experience and provide the newest education and the freshest ways to deliver our conference content. Every year, we survey our members and conference attendees for very specific feedback and suggestions—like with the additions of technology for audience polling, social Q&A, the VCIA App, etc. VCIA will always strive to bring the best to the captive industry.

This year, we will have QR codes on the nametags in order for people to scan into sessions to be eligible for CPE/CLE or ICCIE Credit. We tend to be moving toward more interactive and participatory sessions—with creative activities and exercises to start conversations and encourage attendees to explore what peers are doing and to collaborate. Also, this year, we are providing more education for group captives, as that is a growth area in the industry.

A few logistical changes this year include that the Sheraton is now the DoubleTree by Hilton—same hotel as in past. Instead of box lunches, we will have wonderful buffet lunches (including hot food) in two ballrooms and the exhibit hall, allowing everyone to enjoy lunch and networking with peers. This will be great for casual lunch meetings and networking. There are a number of scheduling changes as well. The Opening Session will be held at the beautiful University of Vermont Davis Center on Tuesday, August 7, at 3:00 p.m. Placing this event at the beginning of the conference allows more uninterrupted time for education all day on August 8. The VCIA Annual Meeting will be held at 8:15 on Wednesday with breakfast available. Finally, we have added dedicated exhibit hall time into the program, so that attendees can visit our exhibitors (nearly 100 exhibitors this year) without missing any education.

Richard Smith is the president of the VCIA, a member-based association whose mission is to educate, communicate, and advocate on behalf of the Vermont-domiciled captive insurance industry. Mr. Smith has led the association as president since October of 2009.

Prior to his work at VCIA, he served as the deputy commissioner of the Public Service Department for the State of Vermont. During his 5 years at the department, he was the primary liaison with Vermont's general assembly on energy and telecommunications issues. From 1998 to 2005, Mr. Smith was the deputy commissioner of the Department of Economic Development for the State of Vermont.

(Article photo of Rich Smith shown above is courtesy of the Vermont Captive Insurance Association.)

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