Vermont's Captive Insurance Industry

This is an interesting story. Did you know that Vermont is the home to more captive insurance companies that any other state?

What is a captive insurance company? It is a closely-held insurance company whose insurance business is primarily supplied by and controlled by owners, and in which the original insureds are the principal beneficiaries. The insureds have a direct involvement and influence over the company's major operations, including underwriting, claims, management policy, and investments. There are currently 4,000 captives licensed worldwide, that service their parents' risk financing needs. In Vermont, that figure is more than 500.

Vermont's captive owners represent a wide range of industries including multinational corporations, associations, banks, municipalities, transportation and airline companies, power producers, public housing authorities, higher education institutions, telecommunications suppliers, shipping companies, insurance companies and manufacturers, among others.

Why go with a captive insurance company? A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers. Vermont officials cite the following advantages of going captive are:

* Coverage tailored to meet your needs
* Reduced operating costs
* Improved cash flow
* Increased coverage and capacity
* Investment income to fund losses
* Direct access to wholesale reinsurance markets
* Funding and underwriting flexibility
* Greater control over claims
* Smaller deductibles for operating units
* Additional negotiating leverage for underwriters
* Incentives for loss control
* Alternatives to costly practice of trading dollars with underwriters in the working layers of risk

What is the economic impact of these companies on Vermont's economy?

* Over 1,100 jobs.
* $52,000 average annual salary for workers.
* $14.5 million in tax payments to the state.
* $850 million on deposit in Vermont banks/financial institutions.

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