Delaware’s Captive Insurance Association fall forum planned for Oct. 27-28 at the Hotel DuPont will be as much of a “home run trot” as it is a professional growth experience.
And Delaware’s Insurance Commissioner Karen Weldin Stewart will be helping cheerlead that celebration, like the manager from the dugout who has seen the team she put on the field just claim the championship.
See www.DelawareCaptive.org for details.
In just the last 4-5 years, the State of Delaware has emerged as a major national – even global – player under Commissioner Stewart’s leadership in what is a little known and yet financially lucrative industry.
Start with the understanding that many companies are able to “self-insure” their day-to-day business risks of property and casualty (P&C) insurance, liability, employee health care, even auto and vehicle insurance.
Insurance exists to cover risks that people know they cannot afford to take. But insurance also has ended up being the mechanism by which all such claims get paid, which means that within a risk pool, someone will pay the claim.
The savvy business today knows it will have claims in the aforementioned fields, so, if and when it can effectively manage and pay its own losses, it has little incentive to participate in a “risk pool” where the company effectively assumes the cost of others’ higher (and perhaps less well-managed) losses via risk-sharing, as well as the operating costs of the “risk pool.”
“As companies moved to self-insuring, many began to realize the value of effectively becoming their own insurance company,” said Commissioner Stewart. “The losses they knew they would cover they simply covered and paid. Excess losses, e.g., the mid-sized company that has the proverbial ‘$1 million baby,’ the low-birth weight baby that needs extraordinary treatment including an incubator, is covered by shifting the risk of that occasional incident to a one-off type policy for excessive loss.”
Captive Insurance is the business of providing services to such self-insuring companies that are willing to create and own their own Insurance Entity. Those include accounting and auditing, legal, “captive management,” and other related services. Perhaps a dozen Delaware companies, in the professional services and financial sector, have found this a growing industry.
Such Captive Insurance companies need a “legal domicile,” a legal home, just like any company that incorporates. While Delaware was early to the party, back in the 1980s, no one seemed to tend the growth of the sector, allowing the State of Vermont move quickly to lead the niche in the US, and the Cayman Islands to become a preferred off-shore destination.
A decade ago Delaware had literally a handful of Delaware-domiciled captives, just 4 or 5. Just 4 years or so ago Delaware celebrated its 100th Delaware-domiciled captive. Now it’s in the low 900s, and Delaware will celebrate its 1,000th captive early in 2015.
“When I brought it up in the beginning, people thought it was a joke,” Commissioner Stewart recalled. “Most of the other Insurance Commissioners weren’t that interested.”
First elected in 2008 as Delaware’s 25th Insurance Commissioner, and then re-elected in 2012, Ms. Stewart leads a regulatory agency with jurisdiction that ranks 10th in the United States in national written premium and companies with $506 billion in assets, generating about $100 million in revenues, money the State does not need to raise in taxes from its citizens.
“I felt it would benefit Delaware on more levels, with our holding companies. Delaware, which is a world domicile for corporations, can bring one-stop shopping. Plus, given our Chancery Court and our Corporate laws, they all tie together. Plus, our location is great!,” she added.
It’s the company’s insurance brokers who play an important part in “steering” the domicile decision to Delaware, or its competitors like Vermont, so Delaware works closely with the major players, like Marsh and Aon.