Resilience in the face of change

Vermont’s stability and innovative thinking are key in difficult times for businesses, says Brittany Nevins of Vermont’s Department of Economic Development.

"Vermont’s domicile has weathered the storms of the financial crisis of 2008 and later the global COVID-19 pandemic." Brittany Nevins

The key to Vermont’s success as the top captive insurance domicile in the world is stability. Twenty years ago, when Captive International was formed, Vermont’s deputy commissioner of captive insurance at the Department of Financial Regulation, Sandy Bigglestone, had already been working for the Captive Insurance Division for seven years. Vermont’s director of captive insurance, Christine Brown, was just starting in the division that year, and there have now been 19 years for Vermont’s assistant director Jim DeVoe-Talluto and 17 for Vermont’s director of examinations, Dan Petterson.

With the first deputy commissioners of the division appointed in 2003, Vermont has since had just two others. The division enjoys favourable staff retention, an average of 11 years, with some having more than 30 years and others who have just started their captive regulatory career. The Vermont Captive Insurance Association (VCIA) has also had just three leaders in the last 20 years. You get the picture: Vermont is as stable as it comes.

Stability doesn’t mean complacency, however. The division and the VCIA have been providing the perfect recipe for success in meeting the needs of captive insurance companies that is quite simple: thorough research, risk-focused regulation, timely advocacy, and industry-wide education.

A critical time for Vermont

Just before this publication was formed things were quite interesting in the captive insurance space. In 2002 Vermont became the third largest domicile worldwide, surpassing Guernsey, and the insurance market was hardening significantly as a reaction to the September 11, 2001, terrorist attacks at the Pentagon and in New York City.

In the same year, the VCIA had its first roadshow in New York City and the Terrorism Risk Insurance Act was established in response to great uncertainty in the market; it had a
substantial impact on the captive insurance industry. As a result, 2003 was the highest year of growth in Vermont’s 42-year history, having licensed 77 new captives that year and 70 the year before.

“This was a time of great growth for Vermont, and we still have many captive insurance companies forming to take advantage of that backstop today,” recalls deputy commissioner Bigglestone.

The division had 18 staff members; it now has 32. Vermont’s licensed captive insurance companies had $9.3 billion in gross written premium—in 2022 it was $42 billion. Vermont went from 500 captives licensed in 2001 to 1,000 in 2013.

Over 20 years Vermont’s domicile has weathered the storms of the financial crisis of 2008 and later the global COVID-19 pandemic. Through both crises Vermont’s captive insurance companies made it through virtually unscathed—some even thrived, which was no accident.

“In cases where the parent company faltered a bit, the captive remained strong and supported the parent company, and this has much to do with the way that we regulate companies in Vermont,” recalls Brown.

Risk-focused approach to regulation

Vermont has a regulatory framework that focuses on the solvency of the captive insurance company and the emphasis on captive insurance as a long-term solution. This approach puts companies in a strong position, which was especially true when the pandemic hit. Vermont regulators look closely at a company’s plan to mitigate risk and prevent loss and how they implement these plans, which is integral to the success of the captive.

“We’ve emphasised a more risk-focused approach over the years that has allowed us to focus our resources, time and effort on the parts of the company that posed the highest risk to its insureds,” says Petterson.

Vermont has achieved its success not by reducing oversight, but by ensuring that the domicile licenses companies with an insurance challenge and that companies are appropriately addressing the challenge through a captive.

“Vermont performs all examinations in-house, which has been key to supporting companies over long periods of time,” says DeVoe-Talluto. “Key knowledge is retained within the department and cost is controlled to companies.”

Education: the foundation for future success

Vermont’s success can be attributed greatly to its multi-directional investment in education: educating fellow regulators, lawmakers, staff, and the prospective workforce. Vermont has done this in conjunction with the important work of the VCIA.

Recognising that education industry-wide was central to the success of the industry in the long run, and that a domicile needed to step up to the challenge, in 2003 the VCIA worked to form the International Center for Captive Insurance Education (ICCIE). Formed officially as a 501(c)(3) in 2004, with the help of University of Vermont staff, ICCIE has since benefited thousands of captive insurance professionals not just in Vermont, but around the country, helping deliver vital captive insurance education from industry experts.

“I wasn’t around at the time, but I’ve heard from those who were that it was important for the efforts to be not domicile-specific,” says Kevin Mead, current president of the VCIA. “It had to go broader, which is why it was set up as an organisation separate from the VCIA.”

Vermont and the VCIA take a similar approach with the annual conference, considered by many to be the conference with the highest quality captive insurance education in the world. While the pandemic has impacted attendance over recent years, the annual conference first surpassed 1,000 attendees in 2003 and peaked at 1,400 in 2007.

Not only Vermont captive insurance companies attend, but also regulators and captives licensed around the world, purely for the education and the connections they make. Other domiciles exhibit at Vermont’s conference, something that’s always been welcomed and encouraged.

The federal Nonadmitted Reinsurance Reform Act of 2010 was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2008 financial crisis. The change was seen as positive in that it allowed the growth of the captive insurance industry not just in Vermont, but elsewhere, with the proliferation of captive insurance domiciles, professionals, and education on a wider scale, but the growth did not come without challenges.

“This was pivotal for us as we recognised that we needed to do more to participate in education sessions and spreading substantive education about quality regulation and not compromise the integrity of the industry and the gold standard,” says Bigglestone.

Vermont leaders have been on the forefront of legislative changes and advocacy at the state and national levels, ensuring that the direction of the industry retains a positive reputation. Vermont passes an annual captive insurance bill in the legislature with necessary changes to the statute based on industry feedback and thorough research.

It’s no secret that Vermont is innovative and proactive about the needs of captive insurance companies and that what happens in Vermont is replicated around the world.

Wider influence

The VCIA is the only captive insurance association with a full-time lobbyist in Washington D.C. and as the leading domicile for risk retention group (RRG) captives, Vermont recognises the importance of having a seat at the table and identifying concerns before they become significant.

Vermont has been a participating member of several National Association of Insurance Commissioners (NAIC) working groups since the 1990s, and was vice chair of the NAIC’s Risk Retention (E) Task Force for many years until Bigglestone became chair in 2017. Having a quality set of standards and regulatory practices is central to oversight. Sharing knowledge, educating and leading by example are a few ways in which Vermont has influenced the work at the NAIC.

NAIC accreditation standards include a set of uniform laws and regulations that state regulators are required to have as baseline standards to effectively regulate RRGs. Whether or not RRGs are regulated under a state’s captive laws or traditional laws, knowledge and experience play a vital role. NAIC-established standards and procedures are key to a regulatory environment where states can rely on the work of other states. Vermont works hard to demonstrate high standards for licensing and monitoring, raising confidence in the RRG marketplace.

Moving forward

Vermont will always think seriously about ways the domicile could improve. We recognised in 2023 that workforce challenges were an issue that could no longer be ignored, and with the backing of the VCIA, created the Vermont Captive Insurance Emerging Leaders Initiative to educate Vermonters about captive insurance as a career path and support emerging professionals in the industry. Vermont hopes that the initiative will be a catalyst for similar initiatives in other domiciles, as the workforce challenge is not isolated to Vermont.

The Vermont team looks forward to the years ahead and thanks Captive International for its work in the industry over the last 20 years.

To find out more visit: www.vermontcaptive.com/

Brittany Nevins is captive insurance economic development director at the Vermont Department of Economic Development. She can be contacted at: brittany.nevins@vermont.gov