[Watch and read] Strategic development powers on
Travis Wegkamp (pictured) of the Utah Insurance Department explains how the state is continuing to stride forward as a player in the captive insurance industry.
In the rapidly evolving world of captive insurance, Utah has emerged as a dynamic and innovative domicile, experiencing significant growth and strategic development over the past few years. With the hardening of the commercial insurance market, businesses are increasingly turning to alternative risk transfer mechanisms, and Utah has positioned itself as a favourable destination for establishing captives.
Utah’s captive insurance market has shown a consistent upward trajectory, with significant growth reported over the 2023–2024 period. According to Travis Wegkamp, captive insurance director at the Utah Insurance Department, this growth is not a recent phenomenon but rather the continuation of a trend that began in 2022.
“Since that time, we’ve been seeing some good net growth in our captive numbers for total licensed entities,” he notes. In 2023 alone, there was net growth of 27 captives in Utah, following a net increase of 34 in 2022. This resurgence comes after a period of decline triggered by the Protecting Americans from Tax Hikes (PATH) Act, which led to a shakeout of smaller captives, particularly those utilising the 831(b) tax election.
This recent growth is not only in numbers but also in the size and scope of the captives being established. Wegkamp highlights that the captives entering Utah’s market today are larger and more robust, likely to remain in operation for the long term.
“The captives that are coming into Utah now are larger programmes with larger gross premiums in their programme and are likely to stick around longer and bring more of a continuous growth and change here,” he says. This shift is reflected in the significant increase in gross premiums written in the state, which jumped by nearly a billion dollars in 2023 alone, reaching approximately $3.125 billion.
This marks a substantial rise, underscoring the growing confidence in Utah as a domicile for more substantial captive insurance programs.
“We’re going to take a closer look at the cell sponsored legislation in our code to make sure everything’s up to date.Travis Wegkamp
Drivers of growth: the hard market and beyond
The ongoing hard market in commercial insurance has been a key driver of growth in Utah’s captive insurance sector. Businesses faced with rising renewal rates and limited coverage options are increasingly exploring captives as a viable alternative.
Wegkamp attributes much of the growth to this trend, stating: “Companies that have captives are placing more of their coverage in them, once they get the sticker shock of the renewal rates they’ve been getting, as well as more companies exploring the alternative risk market due to those high rates and renewals.”
Moreover, this growth is not confined to any single sector but is broadly distributed across various industries. Professional services, particularly in the healthcare sector, have recorded notable expansion.
“Professional services have been a large area of growth for us, with a lot of that being doctors and others who work in the healthcare industry,” Wegkamp explains. These professionals, increasingly aware of their risk management needs, are turning to captives as a means to gain more control over their insurance coverage and costs.
Another significant, albeit unique, factor that has contributed to the increased interest in captives is the COVID-19 pandemic. The pandemic prompted many businesses to re-evaluate their insurance coverages, revealing gaps in traditional policies that captives were well-positioned to fill. Wegkamp points out that captives were able to respond quickly to the needs of businesses during the pandemic, providing coverage for “all those crazy wild, unique things that happened during the pandemic, with supplier shortages and all that once-in-a-lifetime stuff”.
Strategic regulatory changes in 2024
Utah has not only seen growth in its captive numbers and premiums but has also been proactive in refining its regulatory framework to support this expansion. Significant legislative changes were enacted on May 1, 2024, aimed at enhancing the state’s competitiveness as a captive domicile.
One of the most impactful changes has been the reduction in minimum capitalisation requirements for sponsored captive programmes. Recognising the growing interest in cell captives nationwide, Utah reduced its minimum capitalisation from $500,000 to $250,000, with only $50,000 required to be maintained by the sponsor. This change is expected to attract more sponsored captive programmes to the state.
“We felt it was time for us to take a close look at that as well and reduce it,” Wegkamp notes, adding that this move reflects the state’s confidence in its regulatory framework and the sophistication of the programmes it oversees.
Another significant regulatory adjustment involves the examination process for captives. Utah has eliminated the mandatory five-year examination period, opting instead for a more flexible approach that calls for examinations as needed. This change aligns with the state’s historical practice of accepting independent audits in lieu of full-blown examinations for captives that demonstrate good financial health and compliance. By making this adjustment, Utah aims to reduce the regulatory burden on captives, maintaining oversight while allowing them to focus on their core business.
“We’ll get rid of the audit in lieu ability and mandatory exam period,” Wegkamp explains. This change is designed to make life easier for both captives and regulator, ensuring that only those captives that require closer scrutiny undergo full examinations.
Additionally, Utah has introduced a new provision allowing association-type captives to provide homeowners coverage to their members, a direct response to the challenges faced by residents in high-risk areas such as wildfire-prone regions. This innovative approach is aimed at addressing the gaps left by the traditional insurance market, which has increasingly struggled to offer affordable or even available coverage in certain areas.
Wegkamp highlights the growing interest in this provision, noting that it has sparked conversations with potential captive owners and associations looking to leverage this new opportunity.
Looking ahead: future developments
As Utah continues to refine its approach to captive insurance, several areas are under consideration for future regulatory enhancements. One area of focus is the further development of cell captive legislation. With the reduction in capitalisation requirements already in place, the state is now looking to ensure that its legal framework fully supports the use of incorporated cells, which offer enhanced legal separation and protection for individual cell owners.
“We’re going to take a closer look at the cell sponsored legislation in our code to make sure everything’s up to date,” Wegkamp says, indicating that this review may lead to further adjustments aimed at making Utah even more attractive for cell captives.
Another potential area of development is the exploration of alternative ways to satisfy the economic benefit requirements for captives operating in Utah. Currently, captives are required to have a Utah resident on their board of directors, maintain a principal place of business in the state, and hold an annual meeting with a quorum of directors in Utah.
These requirements are intended to ensure that the state derives economic benefits from the captives it licenses, in lieu of imposing a premium tax. However, the state is considering offering more flexible options for captives to meet these obligations, potentially including financial support for the Utah Captive Insurance Association or other initiatives that contribute to the state’s economy.
Conclusion
Utah’s captive insurance market is in a period of robust growth and strategic evolution, driven by a combination of market forces and proactive regulatory changes. With its growing number of captives, increasing gross premiums, and a regulatory environment that is both supportive and adaptive, Utah is well-positioned to continue its ascent as a leading domicile for captive insurance.
As businesses continue to seek alternatives to the traditional insurance market, Utah’s approach to innovation and regulation is likely to attract even more interest, solidifying its status as a key player in the global captive insurance industry.
Travis Wegkamp is captive insurance director at the Utah Insurance Department. He can be contacted at twegkamp@utah.gov
Click here to read Captive International's US Focus 2024 publication.
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