A10 RISK&INSURANCE
“Putting cyber coverage in
your captive is something
that the Vermont
regulators are very open
to and adept at approving.”
—Richard Smith, president, VCIA
have a lot of risk in that area,” said
Richard Smith, president, VCIA.
This is particularly helpful for
utilities or high-profile real estate
that might otherwise have trouble
finding coverage.
“A major office building near
Broadway sold for $800 million to
a group of investors,” said Young,
citing one example.
“They couldn’t find $800 million
in terrorist protection. It wasn’t even
a question of price, they just couldn’t
find it, because everybody that
writes property insurance for office
buildings was already loaded up.
We worked with them to use their
captive to solve that problem.”
Captives are often formed in
response to risks that insureds feel
aren’t accurately understood or
priced by the marketplace.
“Everyone obviously is talking
about cyber in every facet of business
“The things that make it difficult
for an insurance company to operate
will all be present with driving cars:
no pricing model, no certainty of
where things attach, no history of
court cases.
If it’s a completely self-driving car,
who’s responsible? If it’s a partially
self-driving car, what responsibility
does the driver, if there is somebody
identified as the driver, have? Even
identifying ‘who’s the driver?’ If
the car came to pick you up, who
owns the car? So there’ll be a lot
of questions and that will create
some opportunity for captives,” said
Provost.
Mourelatos agreed: “With the
self-driving vehicles, captives will
be at the forefront, because like
anything, when there is a risk that
tends to be somewhat unknown or
uninsurable, it tends to go self-
insurance first before the commercial
blockchain program? That is an area
that we’re looking at very closely.”
Similarly, while the industry
explores the use of cryptocurrencies
for premium or claims payments,
there may also be a role for captives
in insuring them.
“We have had some discussions
with cryptocurrency markets about
ways that captive insurance might
help indemnify some of their risks,
in the event of some sort of market
failure or loss,” said Smith.
Smith has discussed the area with
Vermont’s lead regulators.
“They are open. They’re
interested,” he said. “They’re going
to be careful ... to see where this
goes, but they definitely are willing
to have discussions about it.”
Other developments that
may present a niche for captive
innovations include the marijuana
industry and its unique legal status.
“These owners are depositing
their cash typically in a bank account,
but most federally chartered banks
will not take their money, so state-chartered banks are stepping up,
but they’re not getting the FDIC
Insurance and that’s where captives
are being formed to provide that
insurance,” said Mourelatos.
“And that’s just one aspect. So
I think there’s going to be a lot
of captive play in the marijuana
industry just because commercial
insurers don’t have necessarily
an appetite and because of the
More mature sectors also turn to
captives in response to issues with
supply or pricing in the marketplace.
“Trucking and transportation-related risk is a challenging area right
now,” said Young.
“Prices are going up, supply is
going down, and clients are being
forced to take more of the risk
themselves.”
He cites a similar dynamic in
liability and workers’ compensation
coverage for nursing homes. &
JON MCGORAN is a freelance writer
based in Pennsylvania. He can be
reached at riskletters@lrp.com
markets get in,” he said.
“They understand the algorithms
and the risks better than the
commercial markets.”
Technologies like blockchain and
cryptocurrencies are also sparking
innovations among Vermont’s
captives.
According to Smith, captive
owners as well as traditional insurers
are exploring the use of blockchain
to protect important policies and
documents that flow between
organizations and clients.
“Vermont has actually been
leading in terms of creating
the structure for institutions
to use blockchain for records
management,” said Smith.
“Is there a place for captives as a
tool to help mitigate the risk within a
these days,” said Mourelatos.
“I think the captives will have a
part in providing coverage in cyber,
either through a gateway to the
reinsurance markets or by retaining
certain levels of risk.”
“Putting cyber coverage in
your captive is something that the
Vermont regulators are very open to
and adept at approving,” said Smith.
“There are certainly a lot of
products in the traditional insurance
world that people are accessing,
but many people prefer to put
cyber within their captive program
because of the flexibility and better
understanding of their own risk
profiles.”
New technologies like self-
driving cars bring other challenges
and, with them, captive innovations.
