Fictional Bermuda-based cannabis captive student case study gains CICA accolades

22-04-2020

Fictional Bermuda-based cannabis captive student case study gains CICA accolades

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The Captive Insurance Companies Association has named Megan Moore and Nathalie Kojababian of the University of Southern California as winners of its 2020 Student Essay Contest. 

Moore and Kojababian, who are studying business administration with minors in risk management, co-authored an essay that demonstrated how an imagined group captive called the American Cannabis Association (ACA) could help companies in the US cannabis industry get access to insurance. 

Cannabis growers, transporters and retailers can struggle to get access to insurance via the commercial market because the drug is still illegal at the federal level, the students explained. Insurance companies struggle to underwrite cannabis-related risks because the industry is so new, meaning there is limited claims history to model risk. ACA would be well placed to provide coverage for an industry that is already worth around $18 billion, and is projected to grow to $30 billion by 2025, they said. 

In addition, banks are still cautious about lending money to companies in this sector due to concerns about money laundering. But banks would be more willing to offer services to a group captive standing between them and the cannabis companies themselves, the winning students said. 

Moore and Kojababian argued a group captive made more sense than a risk retention group (RRG) for the purposes of the cannabis industry, because RRGs are a federally mandated structure and cannabis remains illegal at the federal level. They chose to domicile their group captive in Bermuda, because of the advantageous regulatory framework and collateral requirements it offered. 

Meanwhile, Marissa Dias and Samantha Kane of Saint Joseph’s University, and Magda Olivas Carmona and Rudy Martinez of St. Mary’s University shared second prize in a contest that Dan Towle, president of CICA, said had been remarkably close. 

The students from Saint Joseph’s University had shown how an RRG could be used to manage costs and improve coverage in the Home Healthcare Industry. The National Home Healthcare Association (NHHA) would be based in Delaware, chosen for its flat premium tax rate and flexibility around legalities. 

NHHA would encourage cost control among healthcare members by giving them skin in the game, the students said. Underwriting profits would be used to reduce premiums or pay dividends to insureds. 

The students from St Mary’s University presented on how the craft brewing industry could form a medical stop loss captive called the Craft Breweries Association. 

The CBA, also domiciled in Bermuda, would reinsure 125 percent of its members’ expected losses, while retaining the remaining risk itself. A captive programme manager would handle member claims and help manage costs, while a pharmacy benefit manager would negotiate better pricing around drugs. The CBA would therefore enable members to keep expenses low, while offering more specialised treatment, the students said. 

The winning team was awarded $2,500 for their essay, while the second placed teams were awarded $1,500 each. 

Towle noted that the contest, which is in its second year and is sponsored by Strategic Risk Solutions, had attracted more entries, from more schools, than in the previous year, demonstrating the growing profile of the captive industry among students. 

CICA sees a big part of its mission as advocating for the industry among a new generation of potential employees, he noted, adding that he hoped all the finalists would consider careers in the captive industry.  

Captive Insurance Companies Association, CICA, Megan Moore, Nathalie Kojababian, University of Southern California, Strategic Risk Solutions

Captive International