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VCIA: Vermont New Captive Licenses Experience Growth Spurt in 2020

The hard market in insurance has spurred many organizations to look at their risk and how to finance it.
  • John Weber
  • September 2021

Rich Smith, president, Vermont Captive Insurance Association, said hard-market conditions helped spur an increase in new state captive licenses to 38. The state has 24 or 25 new licenses in a good year.

Following is an edited transcript of an interview with AM Best TV.

Rich Smith

Rich Smith

Vermont is celebrating 40 years as a captive domicile. Is the VCIA also 40 years old?

No, we were formed a couple years after the initial legislation and the industry got off the ground, so we'll be celebrating our 36th anniversary this year. VCIA's been around for a long time, representing the industry both here in Vermont, but also throughout the country.

Vermont's had a pretty active year this year, hasn't it?

It's been incredibly active. Last year, Vermont licensed about 38 new captives. A good year for Vermont is usually around 24, 25 new captives. Obviously, the hard market plays a role there as well. This year, already, I think the numbers I saw in mid-June were over 25 new captives already licensed in Vermont. I think they're going to have another banner year. [Deputy Commissioner Vermont Insurance Division] Dave Provost and his team just do an incredible job, and they just keep churning out the captives.

What do you suppose is driving that?

The hard market has spurred a lot of organizations to look at their risk and how they finance their risk. We'd already seen some growth in the smaller to midsize enterprise, express an interest in captives. The utilization of cells within the captive insurance sphere provides a good starting point for a lot of these organizations, but certainly, the hardening market in the traditional lines have pushed a lot of folks to look at captives.

I understand that there's some new captive legislation in Vermont.

Yes. Every year, we go to the Legislature. I work with Dave Provost and his team at the Department of Financial Regulation, and my legislative committee. What we do is go every year to the Legislature with a bill that we both have agreed on in terms of what we would like to see. This year was no different. Some years, we have bigger items in them. Some years, they're just real tweaks to make sure that the legislation, the regulatory work of the department, is streamlined and keeps up with the evolving nature of captives. This year. there weren't any major pieces, but just again, honing the legislation, making sure we're listening to the industry.

The state is taking part in an experimental blockchain program as it pertains to captives. Can you explain that?

One of the things the state is looking at is potentially the establishment of a digital risk exchange that would use blockchain technology at its core. What this would do would allow—what we hope it will do—will open up more capacity in the capital markets. What I would call the more traditional capital markets on Wall Street and other places as well, for captives to seek something other than the more traditional reinsurance contracts that they already utilize. There is a lot of experimentation with fintech, blockchain, trying to open up, trying to change the traditional insurance and the captive insurance marketplace to keep up with the emerging risks that are out there.

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