States on a Bermuda High
Insuring a Welcome Mat for Captives
States are taking in dozens of captives--captive insurance companies that is--and reaping rewards from them.
Captives are entities set up by either a single company or a group of them for the exclusive purpose of having the captive provide them with insurance. These unorthodox arrangements, which save money for the businesses that use them, also can be revenue winners for states. Last year, Vermont, which leads the states in attracting captives, reaped more than $20 million from taxes on insurance premiums processed by these unusual entities.
To make themselves attractive to captives, states need legislation permitting captives to take root within their boundaries. Vermont, for instance, has had such a law on the books since 1981. Its success has inspired other states. About half of the 50 states now have captive laws, many of which are similar to Vermont's.
But it takes more than enabling legislation to attract and keep captives. According to Derick White, Vermont's director of captive insurance, the captives, which are constantly changing bits and pieces of the way they do business, are looking for states with the regulatory knowledge and flexibility to accommodate those changes. Almost every year, Vermont's legislature is asked to tweak its captive law--and readily obliges.
Vermont has grown its market share to a point where it now ranks third--after Bermuda and the Cayman Islands--as the most popular home for captives. Now other states, enticed by the revenue potential, are trying to be just as responsive. Says Cliff King, Nevada's chief administrator of captive programs, "It makes a whole ton of money for the state."