2017 Vermont Report

A Perfect Fit

Life Time Fitness finds a captive home in Vermont.
By: | April 7, 2017 • 7 min read

Vermont, known for its natural landscape and ski resorts, is also the domicile for a new captive insurance company for Life Time Fitness, Inc., a privately held, multi-billion-dollar healthy living, healthy aging and healthy entertainment lifestyle company based in Chanhassen, Minn.

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“Life Time is a 25-year-old Healthy Way of Life company committed to helping communities organizations and individuals achieve their total health objectives, fitness goals and athletic aspirations  by providing the best places, best performers and best programs that positively change lives every day.

“Beginning with our first club in 1992, we have grown to more than 120 destinations in 35 major markets  across 26 states and Canada, serving more than 1.8 million members,” said Josh Reding, Life Time director of risk management.

“In keeping with our growth, our financial protection and insurance needs have also evolved. With this in mind, we licensed our captive in January of 2017 and funded it in February.”

Life Time’s comprehensive, multi-purpose, resort-like destinations provide entertaining, educational, friendly, functional and innovative experiences that meet the health and fitness needs of the entire family, according to the company.

Over the last 25 years, the company has transformed the health and fitness space, while creating an entirely new industry — Healthy Way of Life. Today, Life Time is poised to further extend its brand and growth with the creation of dozens of new, iconic Life Time destinations, complete with comprehensive Healthy Living, Healthy Aging and Healthy Entertainment programs, services and products, it said.

“Like so many captive programs, the insurance coverage that Life Time Captive Insurance Co. provides to its parent organization is plain vanilla, but the parent is unique,” said David Provost, deputy commissioner of captive insurance, Vermont’s top regulator.

“It was a great fit for Life Time Fitness to form their captive in Vermont — not just because the captive program was right up our alley, but because we have a fitness culture here too,” — David Provost, deputy commissioner of captive insurance, State of Vermont

“It was a great fit for Life Time Fitness to form their captive in Vermont — not just because the captive program was right up our alley, but because we have a fitness culture here too,” he said.

“Vermont ranks as the second-fittest state in the nation, and the Department of Financial Regulation staff exemplifies that ethos. We have bikers, skiers, kayakers, hikers, climbers, marathoners and more on staff, and may be the only insurance department in the country that has put up teams for challenge runs, obstacle races and Penguin Plunges.”

Create a Short List

Given its characteristics, third-party liability, property and casualty are major portions of Life Time’s insurance program.

So is getting educated about risk.

James Swanke, director of risk consulting at Willis Towers Watson, said risk managers should attend RIMS or CICA conferences as well as “talk to the regulators from various domiciles as a first step to learn as much as they can and determine which they like better in terms of captive legislation, regulation and infrastructure.”

“The goal should be to create a short list of attractive captive domiciles. We can certainly provide our point of view as consultants, but it has to be a comfortable fit for the client.”

After research, it’s time for a formal captive feasibility study including actuarial projections, financial analyses and cost-benefit comparisons. In Life Time’s case, company officials admitted to feeling as if they were being overly cautious in the years it took to collect information about various domiciles and put their internal processes in place. But Swanke said the firm took the right amount of time to prepare.

Dan Towle, former director of financial services, State of Vermont

“There are more choices than ever when it comes to domicile selection and competition can be fierce,” said Dan Towle, outgoing director of financial services for the State of Vermont.

“The bottom line is that companies want to form their captives in a predictable, stable, efficient and business-friendly environment. Other jurisdictions can copy our laws, but having our experience, knowledge, infrastructure and a 36-year track record is not easily duplicated.”

That is attractive to first-time captives.

“I joined Life Time six years ago and report to our executive vice president and chief administration officer, who is knowledgeable in risk financing and has always had an appreciation for risk management,” said Reding.

“We have been evaluating the idea of a captive since 2011 and knew it needed to be a long-term program with a solid plan to transfer risk outside of the traditional markets, especially workers’ compensation and third-party liability.

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“The hiring of our Risk & Safety Manager Ashley Fitzner in 2013, was a final piece to our plan for captive preparation. She has brought the needed consistency to our risk reduction programs across all of our destinations in preparation of the captive launch.”

Life Time primarily considered Vermont, Bermuda, and the Cayman Islands for domiciles, but also considered Washington D.C., Arizona (one of the many areas that Life Time has a high concentration of destinations), and even Hawaii.

The decision was narrowed down to Vermont and Cayman, and Life Time selected the leading onshore captive insurance domicile, “because of its reputation in the captive insurance industry for expertise, consistency and a solid infrastructure,”Reding said.

Growth Strategy

While many firms establish captives mainly to gain leverage in the commercial market, Life Time has more ambitious plans.

“What’s important to us is providing our members with unparalleled experiences and value so that they choose to remain at Life Time for the long term,” Reding said.

“Unlike most typical fitness facilities that merely offer roomfuls of equipment without programs and essentially, are non-use models, we always have embraced the concept of Member Point of View (MPV), by building and operating destinations our members want to be in versus places they feel they have to be. We have considered many enhancements beyond our current offerings, and continue looking at the captive as a potential tool to provide additional benefits to members someday.”

“We are being selective about which risks we’re transferring into the captive. We have embraced a crawl-walk-run approach; but the captive will allow us to accelerate our objectives by utilizing our resources to invest in ourselves.” —  Josh Reding, Life Time director of risk management.

This is not to say that Life Time is not seeking financial benefits from the captive formation in the near term. “Our first premium was not significantly different from that which we paid in the commercial market,” said Reding. “One of the objectives is to turn reduced premiums and losses into a surplus.

“We are being selective about which risks we’re transferring into the captive. We have embraced a crawl-walk-run approach; but the captive will allow us to accelerate our objectives by utilizing our resources to invest in ourselves.”

The captive will approach the reinsurance market for the first time this fall. As Life Time continues to enhance its safety program, Reding and Fitzner plan for a portion of future funds to support loss prevention needs.

Josh Reding, director of risk management and Ashley Fitzner, risk & safety manager

Reding said his company selected Vermont “knowing the flexibility of the regulatory framework as an onshore domicile — and by that I don’t mean lax. The onshore domicile allows us to achieve our long-term objectives without as many regulatory roadblocks as an offshore domicile.

“The staff at the Vermont Captive Insurance Division was patient and persistent while we completed our study, and they moved quickly when we were ready to complete the formation of the captive.”

Swanke said that for the most part, “captive domicile laws are comparable state to state but there can be some important differences.” Meeting with potential finalists is important, he said.

“Captive regulators hear about the client’s business plan and vision, and the client hears the regulator’s views on the domicile’s captive law, infrastructure and so forth. There has to be a meeting of the minds, so it is important to sit down together.

“In most cases one domicile stands out as a clear winner after all the visits.”

Swanke said he was not surprised that Life Time chose Vermont. “Vermont is among the oldest and largest captive domiciles. They have significant infrastructure dating back to July 1981. New states will enter the scene as captive domiciles with their bells and whistles, and those often attract local companies that want to do business in state or close to home. There is a lot of competition among domiciles.”

One trend in captives, he added, is captive owners moving non-traditional risks into their captives beyond the standard risks of general liability, auto, workers’ compensation and property.

“We are seeing a lot of interest in cyber, also wage-and-hour, which is related to employment practices liability,” Swanke said. “Certain domiciles will be more comfortable with these newly emerging risks, which will foster further competition across the domiciles.”

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While Life Time does not yet operate one of its healthy-way-of life destinations in Vermont, it appreciates the healthy lifestyle living the Green Mountain State provides, and is excited to partner with their captive offerings in the years ahead. &

_____________________________________________________________

2017 Vermont Report

 

Vermont Eyes Agency Captive

An agricultural consortium is one group taking a serious look at forming an agency captive in Vermont.

Eight Questions for Dan Towle  

Risk & Insurance® speaks with Dan Towle as he departs from his long tenure as director of financial services for the State of Vermont.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Manager Focus

Better Together

Risk managers reveal what they value in their brokers.
By: | June 1, 2017 • 11 min read

Michael K. Sheehan, (left) Managing Director, Marsh and Grant Barkey, Director of Risk Management, Motivate International Inc.

Ask a broker what they can do for you and they will tell you. But let’s ask the risk manager.

What do risk managers really need in a broker? And what do the best brokers do to help risk managers succeed in their jobs?

Chet Porembski, system vice president and deputy general counsel, OhioHealth Corp.

Risk managers say it’s a broker who helps them look knowledgeable and prepared to their bosses. It’s someone who sweeps in like a superhero with an ingenious solution to a difficult problem.

Risk managers want to see brokers bring forth better products year after year. They want a broker who shows up at renewal time with new ideas, not just a rubber stamp.

Great brokers embed with the risk management team and learn everything they can about the company and its leaders. They help risk managers prepare and keep tabs throughout the year on changes at the organization with an eye towards planning the future.

“There’s the broker that sees themselves as just a hired ‘vendor,’ or I should say, somebody that basically just does the job at hand,” said Chet Porembski, system vice president and deputy general counsel at OhioHealth Corp.

“And then there’s the broker that views themselves very much as a business partner.  They truly bring added value to the relationship.”

These brokers look at the tough issues the risk manager is facing and bring in the resources to try to help their client in ways even the client might not have thought about yet. They also do advanced planning that makes the risk manager’s job easier when a problem arises.

“That’s the kind of broker I want.” Porembski said.

And that’s the kind of broker many risk managers need more than ever.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust.” — Frances Clark, director of risk management and insurance, Sentara Healthcare

That’s because risk managers are under increasing pressure these days. They carry more weight as corporations shrink their departments to cut costs.

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Climate change, cyber threats and geopolitical shifts are turning what were once unthinkable losses into risks that are almost commonplace. And this is all happening in an under-insured risk environment, according a study by PwC entitled Broking 2020: Leading from the Front in a New Era of Risk.

Thankfully there are good brokers out there, risk managers say, who can bring more value to a client today than ever before and help ease that fear.

Brokers — the traditional intermediary in the risk transfer chain — do in fact have a tangible and growing role in developing viable and innovative solutions for the risk manager, according to PwC’s study.

They are the “global risk facilitation leaders.”

“[Whatever] organizations are doing in the short term — be this dealing with market instability or just going about day to-day business — they need to be looking at how to keep pace with the sweeping social, technological, economic, environmental and political (STEEP) developments that are transforming the world,” PwC said in the report.

Advisors That Are Getting It Done

Cyber risks are just one growing challenge that all organizations grapple with.

Frances Clark, director of risk management and insurance at Sentara Healthcare, remembers when her broker first suggested that she hold a leadership tabletop cyber drill.

Clark said her broker kept saying, “I know this is going to be a painful experience, but you are going to come out so much better in the long run.”

Frances Clark, director of risk management and insurance, Sentara Healthcare

Her broker was right, and went so far as to help arrange a system-wide drill that included representatives from the legal, finance, security, communications, marketing and medical teams.

They reviewed the many ways a cyber attack can happen and then practiced a response.

“We benefitted greatly from that exercise,” Clark said.

When Doctors on Demand developed a telemedicine app to offer mental health services through mobile devices, the company ran up against insurance limitations across state lines. All states require that the physician giving the advice be licensed in the same state where the patient is located.

The concern was for patient encounters where the patient actually crossed state boundaries during the encounter, due to the utilization of a mobile phone. The patient may have started with a properly licensed physician in the original state, but then crossed into a neighboring state where the physician was not licensed.

Larry Hansard, a regional managing director at Arthur J. Gallagher & Co., and a 2017 Power Broker®, worked to secure medical professional liability coverage without the traditional licensure exclusions placed on medical professionals by insurance carriers.

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The initiative he helped develop actually changes how health care can be delivered to patients. It allows the emerging telemedicine sector to now offer services around the world.

Two-thirds of the risk managers in the PwC Broker 2020 survey labeled their brokers as “trusted advisors.” But the same survey found that some participants see their broker as more of a straightforward service provider rather than as a source for solutions.

The survey results indicate there is plenty of room for brokers to bring more value to clients.

OhioHealth’s brokers meet each year with OhioHealth’s risk management team to review insurance coverages.  And when the health system holds quarterly risk management retreats, the brokers attend. They bring with them education and insights on a broad range of topics, from property insurance markets to cyber solutions.

Porembski’s brokers also collaborate with the risk managers when there’s an upcoming presentation on risk issues to senior management. Sometimes the brokers help prepare the presentation, he said.

“We end up looking exceptionally good to our senior leaders and our board,” he said.

Involving the broker in interactions with leaders outside the traditional risk management team has benefits beyond selling products, he said. It extends the relationship circle.

Clark tries not to think of her brokers as outside vendors just providing a service. She wants them to be as committed and knowledgeable about the organization as she is.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust,” Clark said.

“You have to be completely open and honest about everything, no matter how bad it is, or how bad it may look to the market or underwriters.”

“Once you establish that trusting relationship, I think everything else falls into place,” she adds.

Sentara underwent significant growth recently, acquiring five hospitals in about six years. The expansion required a vast amount of integration on insurance programs and a merger of risk management departments and claims.

Clark said her brokers rolled up their sleeves and expertly navigated her through the consolidation.

“I can’t reiterate enough how most risk managers don’t know how to deal with an M&A unless you’ve gone through it.”

She said she wouldn’t have been able to manage the risk of the mergers without her broker’s counsel.

Grading the Broker

Mike Lubben, director of global risk management at Henry Crown & Co. in Chicago, sets standard expectations of his insurance brokers: know the exposures, understand how a risk manager has to sell ideas internally and understand the urgency of requests.

He lets his brokers know his expectations with regular report cards, complete with letter grades. And he isn’t shy about giving out Fs.

  • How did the broker service the EPLI coverage?
  • Did the broker provide expertise and coverage analysis?
  • Was there anything creative?
  • Did the broker recommend new endorsements based on the previous exposure?
  • Did the broker recommend any risk mitigation programs?
  • How well did he communicate and help with presentations?

“A good broker will think this is fantastic,” Lubben said.

This method starts the conversation. It helps Lubben establish long relationships with some stellar brokers.  But if the broker misses the mark, Lubben can have a talk with them about ways to do better in the future. Some brokers he has sent away.

Recently a broker failed on what Lubben calls “blocking and tackling,” the basics like returning phone calls within one day and responding promptly to emails.

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Lubben gave him an “F” on those subjects and told him why. The broker still didn’t improve his game and was eventually replaced.

For many people, insurance can seem very routine from renewal to renewal. But a really good broker will break from routine and come back with some kind of enhancement or improvement.

If the renewal is flat with no change in premium, then Clark says she’ll ask, “What are you going to do for me this year?”

The best brokers are always striving for better, she said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.” — Mike Lubben, director of global risk management at Henry Crown & Co.

Motivate International Inc., which operates more than half of the bike share fleets in North America, went through a recent renewal.

Their broker, Marsh, explored more than 10 options with different strategies and programs. In the end, after all of that, they decided the expiring coverage was the best fit.

“Those exercises are very valuable for risk managers,” said Grant Barkey, Motivate’s director of risk management.

“As an innovative company committed to delivering best-in-class services, we believe thorough exploration leads to informed decision-making.”

A good broker understands that a company’s day-to-day operations and a highly effective risk management program have implications for what type of policy should be procured, he said.

Brokers need to partner with risk managers to figure out what those options are, and what the markets are saying and then succinctly relay the information to management.
They also need to have the tact and curiosity to inquire about future plans and figure out what resources might be needed to better serve their client.

When PwC surveyed risk managers, most put their insurance carriers and industry groups ahead of their brokers as the primary source of cyber and supply chain risk solutions; yet these areas are still cited as risk managers’ top concerns.

“Becoming the go-to partners for developing and coordinating innovative and effective solutions in these priority risk areas is at the heart of the commercial opportunity for brokers.” PwC said in its report.

“Yet, our survey suggests that these are important areas where brokers are falling short of the market’s demands and therefore need to adapt.

For example, less than a third of respondents are very satisfied with brokers’ analytical and modelling services across a range of areas.”

When participants were asked how their brokers could be more efficient, respondents put risk analysis at the top of PwC’s survey list. Significantly, more than a third also cited ‘big data’ analysis.

Finding the Right Fit

Paul Kim, Co-CBO of U.S. Retail at Aon Risk Solutions, helps match brokers to risk managers. He keeps in mind that insurance companies tend to sell product, while the clients are looking to manage risks. The right broker assists in mapping risks to existing products and also customizing broad solutions, he said.

“The risk manager’s job has become more complex in the current environment, but there are so many tools available for those individuals to make better informed decisions that truly help protect the overall risk profile of their companies,” Kim said.

Paul Kim, Co-CBO of U.S. Retail, Aon Risk Solutions

That’s why finding the right broker should be first and foremost, he said. Look for an individual with strong industry knowledge, product expertise and market relationships. A strong broker is able to effectively communicate what the risk manager’s goals are to the marketplace to be able to execute and achieve those goals.

“Not every broker can do that,” Kim said.

“Not every broker is the right broker.”

PwC said those brokers who quickly master the art and science of identifying ambiguous threats and then mobilize a broad private/public stakeholder pool to economically manage those risks over time will pull ahead of their competition.

“We’re really generalist,” Lubben said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.”

When selecting a broker, the risk manager should also take into account the entire organization behind the broker. Ask about the additional support systems that are available to the broker’s clients.

The company should have a deep bench so when the primary broker is out of the office there’s someone else to rely on who is almost as knowledgeable. The broker organization should also be able to assist you with your budgeting and forecasting from a financial risk perspective.

In PwC’s survey of risk managers, nearly three-quarters want analytics from their broker to help inform their decisionmaking, with concerns over new and emerging risks being a strong driver for this demand.

Clark also thinks it is vitally important for a broker to offer a claims advocate, somebody on the outside, when you are dealing with a carrier on a complicated claim.

“Otherwise you are vulnerable to what the carrier says,” Clark said.

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To lead in this new era of risk, it’s also important that brokers forge close relationships with a broader set of stakeholders that includes governments, academia, specialist risk consultancies and even their industry peers, PwC said in the report.

It’s also going to be important to develop shared databases and research capabilities.

In turn, brokers need to assure this diverse stakeholder group that they are the right party to lead.

Clark, at Sentara Healthcare, said she knows what her risk exposures are today, but she’d like her brokers to anticipate her needs before she does.

“It’s kind of crazy, but amazingly some of them do it,” Clark said.

The broker will also use past experience and industry knowledge to anticipate where policy terms and conditions can be tweaked and improved upon.

“They will, say, advise us that we need to change this policy language, and then a year later you have a claim on that and you thank your lucky stars that they changed it,” Clark said.

“It is amazing to me every time it happens.”  &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]