Vermont regulator ponders what’s hot ahead of conference speech

David Provost, the deputy commissioner for captives in the State of Vermont, estimates that this is his 25th VCIA conference. His first was in 1986, but he was not such a regular fixture in his first few years, attending only sporadically over the next decade or so. But since the turn of the century he has not missed a year.

Such is his familiarity with the event, and the faces he will be seeing there, that he likens it to a high school reunion. But there will be no time for attending any of the panel sessions or speeches, let alone reminiscing about teenage high jinx. As the chief captives regulator in the foremost US captives jurisdiction, Provost is in high demand and has back-to-back meetings and appointments planned for the duration of his time in Burlington.

For those that have not already scheduled a slot in that period, there will be a chance to hear his thoughts when he delivers his hot topics discussion on Thursday - consistently one of the most eagerly anticipated sessions of the annual event.

Provost said: “I don’t know exactly what I will talk about at the hot topics session. We ask the audience what they think is hot so it very much depends on them.”

However, years of involvement at VCIA has given him a good idea about what is likely to be asked.

Provost said: “The hard market is almost guaranteed to come up. We are seeing evidence of the market hardening, if it is not already hard. We are hearing from clients that certain insurance lines are being cut or repriced. People are already being affected by this.”

This, of course, is an opportunity for captives. For every line of business being cut, or priced so aggressively that it is no longer attractive to many customers, there is another incentive to create a captive, or move more business into an existing one.

Provost said: “There are many people in the industry today who do not remember the last real hard market. There will be people working in a captive who were not working in this industry when the urgent need for that captive came about, when people weren’t able to get suitable cover for the right price, or at any price, in the commercial market.”

However, Provost does not see this hard market triggering such a profound period of growth as hard markets in the past have. “The market is borderline saturated already,” said Provost. “If you look at the Fortune 500, most of those companies already have a captive, so there is little prospect of huge numbers of formations. It may encourage some, there are of course companies that don’t have captives yet that will look at it. But as far as Vermont is concerned, we expect to see a rise in the premiums being written by existing captives, and an increase in retention more than a large number of new formations.”

Another topic that is likely to come up is regulation around cybersecurity, said Provost.
“After the Capital One breach there is going to be a push for increased cybersecurity regulation. This is definitely on our to-do list as a regulator. We are keen to deal with this before the Federal government feels forced to step in and do something itself.”

For the captive sector this is a delicate balancing act. It is important that companies have tough cyber protections in place. But many other sectors already have cyber regulations which captive parents will already be bound by. And companies have every incentive to do that themselves without being told to by the government. There will be many views about what the appropriate level of cyber regulation for captives will be, and VCIA will be the place to debate them.

One thing Provost does not expect to be a hot topic for captives is marijuana. “There is a lot of money in this business and it is growing all the time,” he said. “But states have been taking some time to get comfortable with this risk, and by the time they do I think commercial insurers will have got comfortable with it as well. There will be opportunities here for captives, of course, but this insurance is not going to be exclusively written by captives.”