2017 Vermont Report

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.
By: | April 7, 2017 • 5 min read

R&I: How did the captive industry in Vermont evolve during your 17 years there?


When I first started in 1999, the captive insurance landscape was very different. Being “on-shore” meant Vermont or Hawaii and the “off-shore” jurisdictions held much more of a dominant position in the marketplace. We spent more time explaining to risk managers what a captive insurance company was and why you might want to form one. There were only a small number of captive insurance conferences, and there was plenty of business to go around.

Fast forward, and every year new states were passing captive insurance laws and the captive marketplace was much more competitive. The fact that we now had dozens of domestic domiciles trying to grow their business elevated the captive insurance knowledge base to a broader audience. The marketplace was changing and our messaging had to evolve and sharpen for us to continue to differentiate ourselves.

Daniel D. Towle, former director of financial services. agency of commerce & community development, State of Vermont

I truly believe that the “new entrants” to the domicile marketplace were good for the industry.

The state made some big investments to effectively differentiate ourselves in the marketplace. We invested significantly in our overall market research and branding efforts. That sent a message to the marketplace that Vermont was not slowing down or becoming complacent, but instead was working hard to reinforce our value proposition.

My role changed quite a bit during that time. I grew into not only being our chief marketer, but also one of strategist and as a leader along with my colleagues. We are more effective with more leaders echoing the same messages, which reinforced the “deep bench” we have in Vermont.

It has been a great experience working here. I had the opportunity to work under four different governors and alongside legends Leonard Crouse and David Provost. I have learned from them all and am grateful for their hard work and commitment to building our captive insurance industry in Vermont.

R&I: Any idea what the number of licensed captives in the state was when you started and where that number stands now?

When I started in 1999, our year-end number for captive insurance companies licensed was 460, our 2016 year-end number was 1088.

I have been with the state for more than 600 of our captive insurance companies licensed, which is more than half of all the captives licensed in Vermont’s history. When I first started, our total gross written premium was $4.2 billion, now it is more than $27.5 billion.

R&I: One of the keys to Vermont’s success as a captive domicile has been the relationship between state government and its elected officials. What do you feel are some key reasons and lessons learned?

We have always worked hard to make sure that the governor’s office and legislature understand the value the captive insurance industry brings to the state. We partner annually with the VCIA to go to the legislature and make sure that they understand what our industry means to the state’s bottom line. We also meet with legislative leaders to make sure they understand about captive insurance and how important an industry it is to our state. We also introduce and pass new captive laws every year.

The bottom line is that we are all in this together and are successful because we are all stakeholders.

Forming a captive can help prevent losses and saves a company money and they can reinvest their savings into preventing future losses.  That is what needs to be shared more consistently.

R&I: Have Vermont’s elected officials had an important impact on its captive industry?

I have been fortunate to work closely with many hard working government officials. A good example of this comes from the very top.  In my role, I would invite the governor to attend events important to the captive industry, or meet with a prospective captive or perhaps meet with an existing captive owner and their boards of directors.  During my time with Govs. Howard Dean, Jim Douglas and Phil Scott, they accepted every meeting request that I have ever put forward to them. That is quite extraordinary and speaks volumes to their commitment to Vermont’s captive insurance industry.

R&I: What accomplishments are you most proud of?

I am proud of our collective work and despite all the competition, Vermont still maintains its top position. I think I am most proud that for 17 years I was still passionate about my work, my colleagues and my clients.

I am also proud to be recognized alongside my colleagues Dave Provost, Sandra Bigglestone and former colleague Len Crouse, in the “Power 50” ranking. The “Power 50” recognizes the most influential and powerful individuals in the global captive insurance industry as voted on by industry peers.

R&I: What are some of the more nagging misconceptions about captive insurance?

Our industry collectively needs to better tell the story about why we form captives and how they benefit their companies. We need to effectively communicate how improving risk management is the primary driver and how having a captive can help a company better manage their overall risk. Forming a captive can help prevent losses and saves a company money and they can reinvest their savings into preventing future losses.  That is what needs to be shared more consistently.

R&I: What are some emerging or dynamic risks that companies might want to be looking to captives to manage?


Any hard to place line of coverage can be a risk that fits in captive insurance. Especially if they have limited availability, high cost and many exclusions. Things like cyber and medical stop loss are risks we are seeing more interest in going into captives.

R&I: If you had one piece of advice for your successor in Vermont, what would it be?

Stay the course. Our basic strategy has not changed over the last 36 years. That’s been to license quality companies and regulate them in a way commensurate with their risks.

My other piece of advice is to only chase quality, not sheer numbers and to stay true to the brand. It has served us well during my 17 years, and I expect will continue to serve us well for the next 17. &

Dan Towle will begin his new role as president of the Captive Insurance Companies Association on April 24.


2017 Vermont Report

A Perfect Fit

Life Time Fitness finds a captive home in Vermont.

Vermont Eyes Agency Captive

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


Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Cyber

Expanding Cyber BI

Cyber business interruption insurance is a thriving market, but growth carries the threat of a mega-loss. 
By: | March 5, 2018 • 7 min read

Lingering hopes that large-scale cyber attack might be a once-in-a-lifetime event were dashed last year. The four-day WannaCry ransomware strike in May across 150 countries targeted more than 300,000 computers running Microsoft Windows. A month later, NotPetya hit multinationals ranging from Danish shipping firm Maersk to pharmaceutical giant Merck.


Maersk’s chairman, Jim Hagemann Snabe, revealed at this year’s Davos summit that NotPetya shut down most of the group’s network. While it was replacing 45,000 PCs and 4,000 servers, freight transactions had to be completed manually. The combined cost of business interruption and rebuilding the system was up to $300 million.

Merck’s CFO Robert Davis told investors that its NotPetya bill included $135 million in lost sales plus $175 million in additional costs. Fellow victims FedEx and French construction group Saint Gobain reported similar financial hits from lost business and clean-up costs.

The fast-expanding world of cryptocurrencies is also increasingly targeted. Echoes of the 2014 hack that triggered the collapse of Bitcoin exchange Mt. Gox emerged this January when Japanese cryptocurrency exchange Coincheck pledged to repay customers $500 million stolen by hackers in a cyber heist.

The size and scope of last summer’s attacks accelerated discussions on both sides of the Atlantic, between risk managers and brokers seeking more comprehensive cyber business interruption insurance products.

It also recently persuaded Pool Re, the UK’s terrorism reinsurance pool set up 25 years ago after bomb attacks in London’s financial quarter, to announce that from April its cover will extend to include material damage and direct BI resulting from acts of terrorism using a cyber trigger.

“The threat from a cyber attack is evident, and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them,” said Pool Re’s chief, Julian Enoizi. “This was a clear gap in our coverage which left businesses potentially exposed.”

Shifting Focus

Development of cyber BI insurance to date reveals something of a transatlantic divide, said Hans Allnutt, head of cyber and data risk at international law firm DAC Beachcroft. The first U.S. mainstream cyber insurance products were a response to California’s data security and breach notification legislation in 2003.

Jimaan Sané, technology underwriter, Beazley

Of more recent vintage, Europe’s first cyber policies’ wordings initially reflected U.S. wordings, with the focus on data breaches. “So underwriters had to innovate and push hard on other areas of cyber cover, particularly BI and cyber crimes such as ransomware demands and distributed denial of service attacks,” said Allnut.

“Europe now has regulation coming up this May in the form of the General Data Protection Regulation across the EU, so the focus has essentially come full circle.”

Cyber insurance policies also provide a degree of cover for BI resulting from one of three main triggers, said Jimaan Sané, technology underwriter for specialist insurer Beazley. “First is the malicious-type trigger, where the system goes down or an outage results directly from a hack.

“Second is any incident involving negligence — the so-called ‘fat finger’ — where human or operational error causes a loss or there has been failure to upgrade or maintain the system. Third is any broader unplanned outage that hits either the company or anyone on which it relies, such as a service provider.”

The importance of cyber BI covering negligent acts in addition to phishing and social engineering attacks was underlined by last May’s IT meltdown suffered by airline BA.

This was triggered by a technician who switched off and then reconnected the power supply to BA’s data center, physically damaging servers and distribution panels.

Compensating delayed passengers cost the company around $80 million, although the bill fell short of the $461 million operational error loss suffered by Knight Capital in 2012, which pushed it close to bankruptcy and decimated its share price.

Mistaken Assumption

Awareness of potentially huge BI losses resulting from cyber attack was heightened by well-publicized hacks suffered by retailers such as Target and Home Depot in late 2013 and 2014, said Matt Kletzli, SVP and head of management liability at Victor O. Schinnerer & Company.


However, the incidents didn’t initially alarm smaller, less high-profile businesses, which assumed they wouldn’t be similarly targeted.

“But perpetrators employing bots and ransomware set out to expose any firms with weaknesses in their system,” he added.

“Suddenly, smaller firms found that even when they weren’t themselves targeted, many of those around them had fallen victim to attacks. Awareness started to lift, as the focus moved from large, headline-grabbing attacks to more everyday incidents.”

Publications such as the Director’s Handbook of Cyber-Risk Oversight, issued by the National Association of Corporate Directors and the Internet Security Alliance fixed the issue firmly on boardroom agendas.

“What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.” — Jimaan Sané, technology underwriter, Beazley

Reformed ex-hackers were recruited to offer board members their insights into the most vulnerable points across the company’s systems — in much the same way as forger-turned-security-expert Frank Abagnale Jr., subject of the Spielberg biopic “Catch Me If You Can.”

There also has been an increasing focus on systemic risk related to cyber attacks. Allnutt cites “Business Blackout,” a July 2015 study by Lloyd’s of London and the Cambridge University’s Centre for Risk Studies.

This detailed analysis of what could result from a major cyber attack on America’s power grid predicted a cost to the U.S. economy of hundreds of billions and claims to the insurance industry totalling upwards of $21.4 billion.

Lloyd’s described the scenario as both “technologically possible” and “improbable.” Three years on, however, it appears less fanciful.

In January, the head of the UK’s National Cyber Security Centre, Ciaran Martin, said the UK had been fortunate in so far averting a ‘category one’ attack. A C1 would shut down the financial services sector on which the country relies heavily and other vital infrastructure. It was a case of “when, not if” such an assault would be launched, he warned.

AI: Friend or Foe?

Despite daunting potential financial losses, pioneers of cyber BI insurance such as Beazley, Zurich, AIG and Chubb now see new competitors in the market. Capacity is growing steadily, said Allnutt.

“Not only is cyber insurance a new product, it also offers a new source of premium revenue so there is considerable appetite for taking it on,” he added. “However, whilst most insurers are comfortable with the liability aspects of cyber risk; not all insurers are covering loss of income.”

Matt Kletzli, SVP and head of management liability, Victor O. Schinnerer & Company

Kletzli added that available products include several well-written, broad cyber coverages that take into account all types of potential cyber attack and don’t attempt to limit cover by applying a narrow definition of BI loss.

“It’s a rapidly-evolving coverage — and needs to be — in order to keep up with changing circumstances,” he said.

The good news, according to a Fitch report, is that the cyber loss ratio has been reduced to 45 percent as more companies buy cover and the market continues to expand, bringing down the size of the average loss.

“The bad news is that at cyber events, talk is regularly turning to ‘what will be the Hurricane Katrina-type event’ for the cyber market?” said Kletzli.

“What’s worse is that with hurricane losses, underwriters know which regions are most at risk, whereas cyber is a global risk and insurers potentially face huge aggregation.”


Nor is the advent of robotics and artificial intelligence (AI) necessarily cause for optimism. As Allnutt noted, while AI can potentially be used to decode malware, by the same token sophisticated criminals can employ it to develop new malware and escalate the ‘computer versus computer’ battle.

“The trend towards greater automation of business means that we can expect more incidents involving loss of income,” said Sané. “What’s possibly of greater concern is the sheer number of different businesses that can be affected by a single cyber attack and the cost of getting them up and running again quickly.

“We’re likely to see a growing number of attacks where the aim is to cause disruption, rather than demand a ransom.

“The paradox of cyber BI is that the more sophisticated your organization and the more it embraces automation, the bigger the potential impact when an outage does occur. Those old-fashioned businesses still reliant on traditional processes generally aren’t affected as much and incur smaller losses.” &

Graham Buck is editor of gtnews.com. He can be reached at riskletters.com.