Vermont’s Rise to the Top

Over the past 40 years, Vermont has grown into the largest captives domicile in the world, making it a reliable partner for any business.

By: State of Vermont | November 1, 2023

A lot has changed since the State of Vermont first adopted its captive insurance legislation in 1981. Bell-bottom jeans fell in and out of style. Sally Ride became the first American woman to travel to space. The internet was invented and soon came to consume nearly every facet of our lives.

The times have changed and so too have the insurance exposures. Yet Vermont has remained a captive domicile committed to helping businesses navigate their most pressing insurance needs. When traditional carriers shy away from cyber or natural catastrophe exposures, captives are a tool to make sure businesses have the funds they need to become whole again after a claim. When you have an organization who understands its risks greater than anyone, and at the same time, is committed to funding for its risks, a captive insurance company established in a quality domicile becomes a valuable system for managing risk. The state is now the largest domicile with the most active captives licensed.

“Vermont has seen a lot over our 42 years. We have been exposed to new ideas and have taken those on when they feel appropriate, and we have experience with more challenging situations,” said Brittany Nevins, captive insurance economic development director, Vermont Department of Economic Development. “A lot of captives see Vermont as experienced and the best option for their unique needs.”

Its success is enviable. Many other states have tried to mimic Vermont’s captive laws because they built such a strong foundation for growth from the beginning. Over 40 years after the first legislation was passed, here’s a look back on its legacy — and its path toward continued growth.

A Strong Foundation to Build From

Brittany Nevins, Captive Insurance Economic Development Director, Vermont Department of Economic Development

When the Vermont legislature first drafted Vermont’s captive legislation in the early ’80s, lawmakers knew they wanted to build a framework that would last. They dedicated resources to creating a regulatory team to support businesses so that they could strike a balance between laws that enforced quality standards and those that offered support to businesses.

“The goal really was about quality, consistency, the ability to adapt effectively and employ an attitude of reasonableness and respect for the industry,” said Sandy Bigglestone, deputy commissioner of the captive insurance division within the Vermont Department of Financial Regulation.

That regulatory support is still in place today. Vermont reviews and revises its captive laws yearly. Lawmakers don’t just work on captive bills in silos. Industry leaders like Bigglestone, Nevins, president of the Vermont Captive Insurance Association (VCIA) Kevin Mead, and captive owners themselves testify before legislatures to convey the priorities and needs of the industry.

“Our companies are making investments in Vermont, and our investment to them in return is to provide quality regulatory services,” Bigglestone said.

The regulatory team works with an in-house team of examiners to process licensing applications and aid companies with captives in any way they can. Businesses who domicile their captives in the state know that they need not worry about contacting regulators when they have questions or want to make changes to their business plans.

“There’s not this fear or worry that the regulators won’t understand what’s going on,” Nevins said. “This is the kind of culture where insureds can call when there’s bad news, but also when there’s good news, and to ask questions.”

The combination of knowledgeable regulators and competitive licensing fees and fair premium tax rates makes Vermont a top choice for companies looking to start captives. Many people come with unique insurance challenges because they know the team in Vermont will be able to handle it.

“People come to Vermont with interesting proposals,” Mead said. “People are coming in with effectively an insurance problem that they’re seeking to solve, and we’re not always the right place to do it, but we’re always the right place to get an opinion.”

A Network of Support

Sandy Bigglestone, Deputy Commissioner of the Captive Insurance Division, Vermont Department of Financial Regulation

In addition to a supportive regulatory community, captives can find a strong network of service providers in Vermont who can help them manage their exposures and grow their businesses. Just four years after lawmakers passed the first captives legislation, VCIA’s founders started the organization to educate and grow the industry in Vermont.

“The VCIA puts a lot of time and effort into ensuring that education is really top-notch and cutting-edge,” Nevins said.

As the largest captives trade association in the world, VCIA attracts top talent to the area and helps them grow their careers. There are actuaries who can help captives set reserves, captives managers who can help assess exposures, lawyers who can help structure captive insurance companies, investment managers and bankers who can help grow the captive’s asset portfolios, auditors and tax advisors who can provide opinions, and a team of regulators who will provide the necessary oversight, all right in Vermont

“A lot of these folks are coming from places where they are experts in their industry and are not experts in insurance,” Mead said. “They need a captive manager, they need actuaries, they need accountants, they need lawyers, they need investment bankers. In this small community of 600,000 people, those things are available as a one-stop shop.”

VCIA is ensuring that this community of service providers is growing by touting the benefits of a career in captives. Earlier this year, VCIA launched the Vermont Captive Insurance Emerging Leaders initiative. The group of about 30 emerging captive insurance professionals and Vermonters hosts events and works with institutions of higher education to teach young people about the benefits of a career in the industry. This program will help grow and sustain the captives sector in Vermont for years to come.

“We’ve been connecting with colleges and universities and trying to get creative about raising awareness about the career path,” Nevins said. “We need to be proactive because the future of the captive industry as a whole depends on the accessibility of these essential services.”

A Stable Partner to Help Navigate Evolving Exposures

Kevin Mead, President of the Vermont Captive Insurance Association (VCIA)

Vermont’s combination of dedicated regulators, first-rate service providers and industry knowledge has fueled its rise to the number one captive domicile in the world, and it has no plans to slow down. The captives industry in the state is prepared to continue adapting to changing times and insurance challenges.

“We’ve already proven we can be successful based on our history,” Bigglestone said. “The captive industry here and the marketplace can definitely adapt and advance as it needs to.”

One need only look to two contemporary challenges to see how Vermont is stepping up to address today’s risks: cyber and climate exposures.

“The captive insurance industry really can help fill gaps in the traditional market and help companies with their control over their coverage,” Nevins said. “We’ve seen that with cyber, and I think we’re seeing that with climate change as well. It’s an industry that’s inherently built on adaptation and innovation.”

Vermont is home to over half the captives of Fortune 100 and Dow 30 companies. It’s a top choice because of its unparalleled level of support and services. The program has stable leadership — Bigglestone is only the fourth deputy commissioner in 42 years — and they’re committed to keeping the program the best it can be, regardless of the ranking.

“We’re in this to make it last,” Bigglestone said. “I believe we are only winning if we are sticking to our core mission and developing and enhancing in all the right ways for continuing to retain and attract quality captive business to Vermont.”

To learn more, visit: https://www.vermontcaptive.com/

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with State of Vermont. The editorial staff of Risk & Insurance had no role in its preparation.

The State of Vermont, known as the “Gold Standard” of captive domiciles, is the leading onshore captive insurance domicile, with over 1,200 licensed captive insurance companies, including 48 of the Fortune 100 and 18 of the companies that make up the Dow 30.

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.

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Sponsored: State of Vermont

Vermont’s Rise to the Top

A Strong Foundation to Build From

A Network of Support

A Stable Partner to Help Navigate Evolving Exposures

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