VCIA 2019: Regulatory Sandboxes, Cyber Risk Impact and More at This Year’s Can’t-Miss Captive Event

Almost 100 companies will be showcasing their latest product and service developments to around 1,100 captive and risk managers, service providers and other industry professionals at the VCIA 2019 event.

By: Alex Wright | July 30, 2019

Cyber security and association health plans are among the major risks at the top of the agenda for captive owners and risk managers right now.

And they will be a key talking point at the Vermont Captive Insurance Association’s (VCIA) annual conference held at the Double Tree by Hilton in Burlington from Tuesday, August 6 through Thursday, August 8.

Almost 100 companies will be showcasing their latest product and service developments to around 1,100 captive and risk managers, service providers and other industry professionals at the event.

“What’s front of mind for captive owners is future-oriented issues such as blockchain, Insurtech, cyber security and other emerging risks, and the ways in which captives can help to mitigate against them,” said Ian Davis, Vermont’s director of financial services.

“The VCIA and the conference taskforce committee have done a great job of identifying the most pressing issues for the industry at the moment and coming up with unique, interactive, innovative and educational sessions around those issues.”

Wednesday’s session on association health plans (AHPs) will focus on how the new federal regulations governing AHPs differ from the previous ones, the biggest challenges and opportunities associated with them, including legal issues and domiciles, and using a captive for self-insurance and funding medical stop-loss.

Spring Consulting Group’s Healthcare Cooperative will be used as an example to show how they can work in practice.

Ian Davis, director of financial services, Vermont Department of Economic Development

Cyber Risks

Assessing cyber risk internally, deciding when to have an independent cyber audit, learning how companies have handled data breaches and understanding the regulatory examination process will be the main topics of debate at Thursday’s seminar on managing cyber security risk.

The session, moderated by Christine Brown, assistant director of Vermont’s captive division, will also look at possible new cyber regulation and law.

Also on the cutting edge will be Tuesday’s panel discussion on drones, sensors and artificial intelligence, examining how they can be used cost effectively and safely for risk assessment, control/mitigation and to provide claims evaluation data.

Panelists, led by moderator Peter Jagger of Aon Risk Solutions, will consider the key benefits and limitations of using such technology to perform complex analytics, generate 3D models, evaluate insured exposures and assist in claims assessment, particularly when access to a property or site is restricted because of structural or environmental hazards.

How captives can be used to solve new political, technological and ecological problems will be the theme for another debate on Wednesday, centered on using insurance programs to quantify and insure emerging risks for the parent company, newly-implemented innovations and the effect of judicial, tax and legal changes on the new product.

This session will also study how captives can be applied in the place of traditional coverage, and the primary opportunities and challenges involved.

In the same vein is Thursday’s topic on innovative uses for captives, looking at new ways to solve problems, manage risk and measure innovation within an organization. The discussion will uncover methods for using data more efficiently and adopting metrics to measure profitability, as well as providing an insight into rating agencies’ methodologies and risk measures.

Vermont’s Regulatory Sandbox

Only in June, the State of Vermont launched its own insurance regulatory sandbox, enabling captive managers and insurers to develop and test their new products and services in a reduced risk environment.

The sandbox, which came into force last month (July), was formed in response to traditional carriers struggling to meet ever-evolving and niche consumer demands and being encumbered by regulation.

Many incumbents want to create a subsidiary, find an innovative way to deliver products or test a new product. Solving this problem, the sandbox allows users to sell or offer a product to up to 10,000 Vermont residents per year, enabling the State to monitor how the product performs, as well as claims and consumer experience.

It broadly follows the same approach by the Bermuda Monetary Authority, which rolled out its innovative regulatory sandbox regime in July of last year and has since granted its first license to AkinovA, an electronic marketplace for transferring and trading re/insurance risks.

Sandy Bigglestone, director of captive insurance, Vermont Department of Financial Regulation

The State of Kentucky also passed a new law in June establishing an insurance regulatory sandbox, and U.S. District of Columbia mayor Muriel Bowser has set up a council to look at the feasibility of implementing a financial services regulatory sandbox in Washington DC.

The key benefit of Vermont’s new offering for consumers is that they are protected by a statutory deposit put down by the selling company to cover any expenses arising from an event that causes them harm. If it goes according to plan, the state can approve the new product or service, enabling insurers to bring it to market with full licensure.

“It really provides companies the opportunity to come in and tell us what it is about our regulatory process that’s preventing them from offering a particular product in Vermont,” said Sandy Bigglestone, Vermont’s director of captive insurance.

“It allows us then the flexibility to waive those requirements for a limited period of time and for a limited number of our Vermonters while the program is piloted.”

Reaching for the Moon

New to this year’s conference will be captive immersion sessions introducing newcomers to the captive industry, to the main players, and services required when forming and running a captive, with input from legal, audit, actuarial, investment, regulatory and captive management experts.

Also, fitting in with the innovation theme is opening keynote speaker Laura Drabik, group vice-president for business innovation for Guideware Software, talking about the intersection between insurance and technology.

And 50 years on from the first moon landing, former NASA astronaut Mike Massimmo will be the closing keynote, telling stories about his space missions and the training and skills required to accomplish them.

How far man’s space exploration goes in the next 50 years remains to be seen, but it’s a safe bet to say that Vermont will still be at the cutting edge of innovation by then. &

Alex Wright is a UK-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected].

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.

By: Risk & Insurance | April 3, 2024

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.