Gov. Phil Scott signed a bill Monday that expands Vermont’s captive insurance industry.
Scott signed H.85, which passed April 14. The bill creates a new type of captive insurance account and allows existing companies with captive insurance accounts to use new accounting methods.
Captive insurance is a form of regulated self-insurance. Companies set up small insurance companies and pay premiums into a set bank account to insure for risks, such as liability or malpractice. The small insurance company will then pay claims for the larger company.
In other insurance models, individuals or companies pay premiums to existing insurance companies that pay out claims as needed. Companies often find it cheaper to self-insure for risks that would otherwise result in high premiums.
Vermont is known internationally for offering the “gold standard” in captive insurance because the state’s Department of Financial Regulation strictly regulates the captive insurance companies, which are often simply called “captives.”
There are currently more than 1,000 captive insurance companies domiciled in Vermont with more than $100 billion in assets. Health care has become the biggest sector in Vermont’s captive insurance market, with about 100 accounts, Scott said.
“Vermont is the captive home to some of America’s largest and most well-known companies,” Scott said. “In fact, 48 of the Fortune 100 companies, and 18 of the Dow Jones 30 have captives that call Vermont home.”
“Last year, Vermont licensed 26 captive insurance companies, eight of which were in health care,” Scott said. “Health care now represents Vermont’s largest captive insurance industry sector.”
Dave Provost, the deputy commissioner of the Department of Financial Regulation for captive insurance, said most of the health care captives in Vermont are run by hospitals and health care providers “to manage their medical malpractice, professional liability.”
Provost said hospitals and health care providers typically start captive insurance companies in the Cayman Islands because the requirements there are less strict.
“If you want to have lower standards, you have to go elsewhere,” Provost said. “If you want to have the gold standard, you come to Vermont.”
