“The goal isn’t to fi ll the state
coffers with premium taxes
but instead to grow the economy
with sustainable professional jobs.”
US Captive 2018 41
state from captives were reported at just under $13 million, as compared
to $21 million in 2015.
Total invested assets held by Utah financial institutions were reported
at just over $500 million for 2017—down from a pre-PATH Act high of
almost $900 million.
“Despite the decline, I have a positive outlook on the captive industry
here in Utah and in the country,” says Wegkamp. “The positive effect
of the PATH Act was that it gave us more direction and understanding
of what a good captive is and how to be a solid one and move forward.”
“The great thing about the captives industry is its ability to innovate and
respond to what is going on in the market or in the general economy and
to meet those emerging needs,” says Wegkamp. “At the same time, that
can create a challenge to make sure it’s done properly, and that it’s an
acceptable sort of risk.”
One emerging opportunity is the medicinal cannabis industry, but this
also creates challenges.
“Its risks could be insured in a captive. This is difficult at the moment,
however, because it is still a federal schedule 1 controlled substance,
which causes some legal concerns. This means it’s been a slow road,
but it is moving forward.
“A few years ago, none of the companies producing medical cannabis
could get a bank account, and now that’s changing. At this point, it’s
usually local banks or credit unions that are willing finally to do that. As
the local financial institutions are opening their doors to these companies,
that’s going to push the viability of using a captive to cover the risks.”
Wegkamp is also seeing opportunities in voluntary benefits, and in
renters’ insurance for companies that manage properties such as
condominiums and apartment buildings where tenants are required to
have renters’ insurance.
“That is something we can do in a captive if it’s structured properly:
the parent company issues those coverages to the tenants, and then
they can set up a reimbursement programme between the management
company and the captive.
“Other states are more relaxed and don’t need that structure—if it
comes through an insurance company up front, they will let the captive
assume the risk through that front, whereas Utah is a little more strict: it
can only reinsure what they could otherwise insure directly, so they have
to be a bit more creative with those reimbursement programmes.”
A bright future
Wegkamp sees growth ahead in the sector, as more niche industries
become familiarised with the captives concept.
“I’ve heard it said a lot in the last five years that the Fortune 1000
companies have captives and that market space has been filled up.
The trend now is to start marketing them to the smaller, mid-level
sized companies and make them aware of captives, and then for us as
domiciles to look into reduced capitalisation requirements to help get
them involved in the industry.
“We are seeing phenomenal growth in Series LLC captives—we don’t
have those approved as structures in Utah yet, but we are working on
that, and other places such as Delaware have seen huge growth.
“That’s because managers have changed their approach and are
marketing the captive insurance structure to smaller companies and
showing them, even if they are on a smaller scale, that if they are
organised properly and the management is fully committed to it, it can
be a cost saving or even a profitable option for them to take.”
Travis Wegkamp is captive director at the Utah Captive Insurance
Division. He can be contacted at: firstname.lastname@example.org