How do risk managers decide on domiciles for their captives, when more than half the states in the United States are now captive domiciles? Making the decision even more difficult is the option of an offshore like Bermuda, Cayman and others.
Decisions, decisions.
The topic of the expanding number of domiciles comes up often at captive meetings, and I thought about it again at the recent Vermont Captive Insurance Association conference, a gathering place for captive owners, regulators and service providers.
Here's the risk manager's predicament. After convincing the organization's chief financial officer, president or business owner that a captive is the way to go, the pressure is on to choose the right domicile. It has to be a good fit for coverage needs and location. Savvy risk managers know this is a decision best not made alone. But where to start?
One way to start is by checking out Web sites, like the Captive Insurance Companies Association's at www.captiveassociation.com. There is a domicile comparison with information about captive regulations, a list of service providers and Web site links. Another is the VCIA Web site, www.vcia.com. Here, among other things, is a listing of service providers and contact information. A great Web site for risk retention groups is www.nrra-usa.org.
To get a sense of what the domiciles are all about, simply pick up the phone and give the captive regulator a call, as I do from time to time.
If it's difficult to reach the regulator, calls aren't returned, or the caller is shuffled around, this could indicate a lack of support behind the captive department. It also could be a clue as to the infrastructure available to the department.
Vermont is the well-known U.S. infrastructure leader. The domicile and the association go all-out for their captive industry.
Opening the VCIA conference, which attracted 1,300 attendees from 41 states and eight countries, Vermont Gov. Jim Douglas highlighted his state's support of the captive industry. "At a time of general restraint in the state," resources have nevertheless been allocated for two new staff members for the captive department, he said, stressing Vermont's legislative responsiveness–another factor important to domicile shoppers.
Vermont Deputy Commissioner Len Crouse noted that risk managers often attend the conference to check out the domicile. "We've got six definites from this meeting alone," he said.
Hawaii balances Vermont by holding down the West Coast and Pacific Rim with solid oversight, and contenders include Washington, D.C. and South Carolina. A domicile to watch is Delaware, which recently hired industry heavyweight William P. White, formerly of Washington, D.C.
Another consideration is location–a factor favoring onshore domiciles. I'm told that with time at a premium and now with heightened air travel restrictions, risk managers are opting for shortened travel times to their captive domiciles.
So, how does a risk manager choose? Captive consultant Chris Kramer recommended checking out the domiciles, their captive mandates and the domicile's ability to adapt captive statutes in response to the marketplace. He suggested looking at the depth of experience of the captive domicile regulators, the strength of the captive association and how often it meets with captive regulators. He added that it's important to examine a domicile's relationship with offshore domiciles–for reinsurance or for providing extra coverage opportunities for a risk retention group's policyholder.
The best news for risk managers is that the pressure is off. With a softening market, the time to study each domicile's strengths and weaknesses is now.
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