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

Lead Story

Improving the Claims Experience

Insureds and carriers agree that more communication can address common claims complaints.
By: | January 10, 2018 • 7 min read

Carriers today often argue that buying their insurance product is about much more than financial indemnity and peace of mind.

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Many insurers include a variety of risk management services and resources in their packages to position themselves as true risk partners who help clients build resiliency and prevent losses in the first place.

That’s all well and good. No company wants to experience a loss, after all. But even with the added value of all those services, the core purpose of insurance is to reimburse loss, and policyholders pay premiums because they expect delivery on that promise.

At the end of the day, nothing else matters if your insurer can’t or won’t pay your claim, and the quality of the claims experience is ultimately the barometer by which insureds will judge their insurer.

Why, then, is the process not smoother? Insureds want more transparency and faster claims payment, but claims examiners are often overburdened and disconnected from the original policy. Where does the disconnect come from, and how can it be bridged?

Both sides of the insurer-insured equation may be responsible.

Susan Hiteshew, senior manager of global insurance and risk management, Under Armor Inc.

“One of the difficult things in our industry is that oftentimes insureds don’t call their insurer until they have a claim,” said Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“It’s important to leverage all of the other value that insurers offer through mid-term touchpoints and open communication. This can help build the insurer-insured partnership so that when a claim materializes, the relationships are already established and the claim can be resolved quickly and fairly.”

“My experience has been that claims executives are often in the background until there is an issue that needs addressing with the policyholder,” said Dan Holden, manager of corporate risk and insurance for Daimler Trucks North America.

“This is unfortunate because the claims department essentially writes the checks and they should certainly be involved in the day to day operations of the policyholders in designing polices that mitigate claims.

“By being in the shadows they often miss the opportunity to strengthen the relationship with policyholders.”

Communication Breakdown

Communication barriers may stem from internal separation between claims and underwriting teams. Prior to signing a contract and throughout a policy cycle, underwriters are often in contact with insureds to keep tabs on any changes in their risk profile and to help connect clients with risk engineering resources. Claims professionals are often left out of the loop, as if they have no proactive role to play in the insured-insurer relationship.

“Claims operates on their side of the house, ready to jump in, assist and manage when the loss occurs, and underwriting operates in their silo assessing the risk story,” Hiteshew said.
“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.”

Both insureds and claims professionals agree that most disputes could be solved faster or avoided completely if claims decision-makers interacted with policyholders early and often — not just when a loss occurs.

“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.” – Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“Communication is critically important and in my opinion, should take place prior to binding business and well before a claim comes in the door,” said David Crowe, senior vice president, claims, Berkshire Hathaway Specialty Insurance.

“In my experience, the vast majority of disputes boil down to lack of communication and most disputes ultimately are resolved when the claim decision-maker gets involved directly.”

Talent and Resource Shortage

Another contributing factor to fractured communication could be claims adjuster workload and turnover. Claims adjusting is stressful work to begin with.

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Adjusters normally deal with a high volume of cases, and each case can be emotionally draining. The customer on the other side is, after all, dealing with a loss and struggling to return to business as usual. At some TPAs, adjuster turnover can exceed 25 percent.

“This is a difficult time for claims organizations to find talent who want to be in this business long-term, and claims organizations need to invest in their employees if they’re going to have any success in retaining them,” said Patrick Walsh, executive vice president of York Risk Services Group.

The claims field — like the insurance industry as a whole — is also strained by a talent crunch. There may not be enough qualified candidates to take the place of examiners looking to retire in the next ten years.

“One of the biggest challenges facing the claims industry is a growing shortage of talent,” said Scott Rogers, president, National Accounts, Sedgwick. “This shortage is due to a combination of the number of claims professionals expected to retire in the coming years and an underdeveloped pipeline of talent in our marketplace.

“The lack of investment in ensuring a positive work environment, training, and technology for claims professionals is finally catching up to the industry.”

The pool of adjusters gets stretched even thinner in the aftermath of catastrophes — especially when a string of catastrophes occurs, as they did in the U.S in the third quarter of 2017.

“From an industry perspective, Harvey, Irma and Maria reminded us of the limitations on resources available when multiple catastrophes occur in close succession,” said Crowe.

“From independent and/or CAT adjusters to building consultants, restoration companies and contractors, resources became thin once Irma made landfall.”

Is Tech the Solution?

This is where Insurtech may help things. Automation of some processes could free up time for claims professionals, resulting in faster deployment of adjusters where they’re needed most and, ultimately, speedier claims payment.

“There is some really exciting work being done with artificial intelligence and blockchain technologies that could yield a meaningful ROI to both insureds and insurers,” Hiteshew said.

“The claim set-up process and coverage validation on some claims could be automated, which could allow adjusters to focus their work on more complex losses, expedite claim resolution and payment as well.”

Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Predictive modeling and analytics can also help claims examiners prioritize tasks and maximize productivity by flagging high-risk claims.

“We use our data to identify claims with the possibility of exceeding a specified high dollar amount in total incurred costs,” Rogers said. “If the model predicts that a claim will become a large loss, the claim is redirected to our complex claims unit. This allows us to focus appropriate resources that impact key areas like return to work.”

“York has implemented a number of models that are focused on helping the claims professional take action when it’s really required and that will have a positive impact on the claim experience,” Walsh said.

“We’ve implemented centers of excellence where our experts provide additional support and direction so claim professionals aren’t getting deluged with a bunch of predictive model alerts that they don’t understand.”

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners.” — Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Many technology platforms focused on claims management include client portals meant to improve the customer experience by facilitating claim submission and communication with examiners.

“With convenient, easy-to-use applications, claimants can send important documents and photos to their claims professionals, thereby accelerating the claims process. They can designate their communication preferences, whether it’s email, text message, etc.,” Sedgwick’s Rogers said. “Additionally, rules can be established that direct workflow and send real time notifications when triggered by specific claim events.”

However, many in the industry don’t expect technology to revolutionize claims management any time soon, and are quick to point out its downsides. Those include even less personal interaction and deteriorating customer service.

While they acknowledge that Insurtech has the potential to simplify and speed up the claims workflow, they emphasize that insurance is a “people business” and the key to improving the claims process lies in better, more proactive communication and strengthening of the insurer-insured relationship.

Additionally, automation is often a double-edged sword in terms of making work easier for the claims examiner.

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners,” Holden said.

“So while the intent is to make things more streamlined for claims staff, the byproduct is that management assumes that examiners can now handle more files. If management carries that assumption too far, you risk diminishing returns and examiner burnout.”

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By further taking real people out of the equation and reducing personal interaction, Holden says technology also contributes to deteriorating customer service.

“When I started more than 30 years ago as a claims examiner, I asked a few of the seasoned examiners what they felt had changed since they began their own careers 30 year earlier. Their answer was unanimous: a decline in customer service,” Holden said.

“It fell to the wayside to be replaced by faster, more impersonal methodologies.”

Insurtech may improve customer satisfaction for simpler claims, allowing policyholders to upload images with the click of a button, automating claim valuation and fast-tracking payment. But for complex claims, where the value of an insurance policy really comes into play, tech may do more harm than good.

“Technology is an important tool and allows for more timely payment and processing of claims, but it is not THE answer,” BHSI’s Crowe said. “Behind all of the technology is people.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]