Education Is Key to Captive Insurance Company Regulation

Graduation cap corner and tassel, a golden skeleton key and the word Education torn from a newspaper

August 09, 2019 |

Graduation cap corner and tassel, a golden skeleton key and the word Education torn from a newspaper

At this year's Vermont captive conference, top captive insurance regulators Dave Provost of Vermont and Debbie Walker of North Carolina told AM BestTV that regulators look more closely at captive insurance company business issues because captive sponsors are typically sophisticated organizations that voluntarily commit their capital.

Mr. Provost, the deputy commissioner of the Captive Insurance Division of the Vermont Department of Financial Regulation, and Ms. Walker, director of captive insurance in the North Carolina Department of Insurance, told A.M. Best that captive owner and captive insured education and how the captive insurance company should be operated are key issues.

Ms. Walker said this especially holds true for newer captive domiciles such as North Carolina.

"Most business owners understand that [there are] laws in place that they must comply with," she said. "[There are] a few that don't fully understand that though, and perhaps may decide to take out a dividend or take a loan from the captive insurance company and use it for other purposes, which may be fine, but they do need to get the approval of the department first."

"For a lot of the captive owners, this is their first experience being a regulated entity," said Mr. Provost. "If you're a construction company, you have rules to follow with zoning rules and things like that, but not rules about what you can do with your own money."

Larger group captives can be more challenging to regulate compared to single-parent or smaller group captives, according to Mr. Provost.

"A group captive is much more like a traditional insurance company, a commercial insurance company, especially the largest groups where the membership might not really be involved in operating the insurance company," said Mr. Provost. "If you don't have that involvement, a group can function less cohesively, which can wind up requiring some regulatory intervention if need be."

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August 09, 2019