“We see them creating a new profit centre, where the agent actually
owns an insurance company. And now we have the encouragement
of the domestic domiciles,” says Barile.
With agents having to purchase an errors & omissions policy—a
requirement from the carriers they represent—this can create new
opportunities for the agency captive.
When carrying out feasibility studies for the agency captive, Barile points
out policies the owners have bought and simple things they can do within
their captive—such as writing another layer of protection above what the
surplus lines is giving them, and then charging a premium for that.
One of the biggest benefits from an agency captive, in Barile’s point
of view, is the way it can grant the agent a greater understanding of
the industry it operates within.
“The agent today is very curious about understanding the business
a lot better than just collecting commission to sell a policy. And
they’re very fearful that the high-tech companies are coming in to
take their businesses away,” he says.
“The agent of today can no longer just sell policies and collect
commissions. Once an agent owns its own insurance company (in the
form of an agency captive), they now understand exactly how the business
works because they see how their insurance company makes money.
captive legislation or streamlining their current legislation to make the
process of setting one up easier.
In May 2017, Vermont governor Phil Scott signed captive bill H 85,
which added agency captives to the types of structures that can be
formed in the state, with a capital requirement of $500,000.
That same month, Georgia governor Nathan Deal signed Senate
Bill 173 to revise certain definitions in the state’s captive law, such
as allowing pure captives or agency captives to be incorporated
as a stock insurer or organised as a manager-managed limited liability
Another example is North Carolina, which amended its captive laws
in 2014 to provide definitions for special purpose captives. This type
was added to provide for the operation of captives that are deemed
appropriate by the Commissioner but not already defined in the Act.
Previously undefined types of captives such as group captives and
agency captives could now be licensed in the state.
Debbie Walker, senior deputy commissioner at the North Carolina
Department of Insurance (NCDOI), says that the purpose of this
change was to better meet the needs of the captive industry.
A stronger player in the market
Agency captives are seen as powerful financial vehicles that can
open up new lines of revenue for the agent, and allow all the flexibility
that a captive insurer offers.
Furthermore, a well-run agency captive could provide the agency
that owns it a strategic advantage against competitors, provided the
entity is well structured and carefully managed, says Grace.
Jesse Crary, attorney and shareholder at Primmer Piper Eggleston &
Cramer, says that Vermont’s new agency captive law is “purposefully
designed to allow for innovation, growth and creativity over time”.
“While some agencies may have existing books of business that
could immediately turn more profit if an agency captive were utilised,
the market differentiators in this arena will find creative ways to share
the financial upside such that their prospective clients can easily
understand why one agent’s programme is superior to that of its
competitors,” Crary explains.
Christopher Murray, president of Caitlin Morgan Insurance Services,
suggests an agent might consider an agency captive if it has a good
book of profitable business and it wishes to maximise income.
“As they grow the captive and create surplus they could introduce
additional coverages to set them apart from other agencies; they could
also allow an insured to have partial ownership in the captive and they
would have more control over claims and underwriting,” says Murray.
Andrew Barile, CEO of Alternative Global Risk Management, a firm
that offers agency captive feasibility studies, says that today’s agent is
a lot more sophisticated at making a profit for their agency.
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