VCIA Special Section

A new sheriff in town

Provost replaces Crouse as head of the Vermont Captive Division

By Michael J. Moody, MBA, ARM

The captive insurance company phenomenon has been going on now for more than 30 years. Growth over this time period has been steady and now accounts for a sizable portion of the overall insurance market. Nowhere domestically has this growth been experienced more than in the state of Vermont. With 823 captives currently (as of 12/31/07) licensed, the Green Mountain state is the largest U. S. captive domicile.

While change is a constant part of any business, one change that doesn’t happen every day occurred on June 1, 2008: Vermont’s long-time deputy commissioner, Len Crouse, retired. After 18 years on the job, Crouse will be turning the reins over to David Provost.

Key is continuity

Provost is well suited for his new job. His early years have given him a broad panorama of captive experience. Early on, Provost was involved with the banking industry in Vermont, where he had a number of captive insurance clients. From there, he moved over to the captive management arena, where he had direct client relationships with both single-parent captives and risk retention groups (RRGs) while working for Johnson & Higgins and later with Sedgwick, which became USA Risk Group. In addition, he also held captive management positions at AIG, where he spent just over five years involved with marketing captive management services.

In 2001, Provost began his career at the Vermont Insurance Department, where he has been primarily involved with captive examinations, as well as captive insurance company application reviews. He notes that this experience has provided him with an extensive understanding of captives and has shown him “what works well and what doesn’t.”

He points out that it’s the captive owners and prospective owners who are the “real innovators here.” He says, “They deserve a lot of credit.” They are the ones who select Vermont in the first place, “to help them find solutions for their risk financing problems.” Further, he points out, it’s the owners, with advice and counsel from their captive managers, who have made Vermont the largest domestic domicile. He believes that this innovation will continue to make Vermont a domicile of choice for domestic captives.

Settling in

New jobs are always difficult, but to succeed a man who has excelled at the job for 18 years takes a special person. But Provost is settling in. He notes, “Len and I very much share the same philosophy,” which makes the transition much easier. “I am getting more comfortable each day and looking forward to all the new things that pop up.”

By way of example, he points out that recently four captive management companies requested meetings with him. “All of them,” he says, “wanted to talk about TRIA.” He indicates that every day, captive owners are presenting new challenges and new ideas to the Department. He also points out that currently many captive owners are looking for more ways to better utilize their existing captives.

Provost believes that one of the keys to his job is creativity. He indicates that generally it’s the alternative market participants that are providing the creative ideas in the industry. And, he says, “That’s the exciting part for me.” Take the “Triple X” and “A Triple X” approaches, Provost says. “These are excellent examples of the creative aspects of the alternative insurance market.”

And, he says, it is important that Vermont continues to be receptive to these creative ideas. He realizes that it is creative approaches that will advance the state of the market and, he says, Vermont wants to remain at the forefront of the captive movement and as a result encourages this type of innovation.

Vermont moves ahead

The captive industry as a whole is slowing down. Provost points out, “We have had a slow first quarter.” But he says, “That is not surprising.” Between the current soft insurance market and the uncertainty surrounding the proposed IRS regulations, most industry observers fully expected a slowdown in captive formations for early 2008. “But things are picking up now,” adds Provost, noting that there are currently half a dozen applications in the pipeline. As a result, he believes that 2008 will “wind up being an average year for us.”

Further, he points out that captives that start in a soft market “have owners that really want them.” Those owners that form their captives today, he says, “know what they want, and they know how to get it.” For the most part, he says, “most realize that the hard market will return,” so forming the captive now is the correct thing to do.

They also realize that it is so much easier to form a captive in today’s soft insurance market. Reinsurance is plentiful and fronting carriers are willing to work with start-up captives. Provost points out how important it is to be in operation and have some actual, credible loss experience prior to the hard market.

One of the things that has confounded Provost, as well as other industry experts, is the lack of traction in the market with regard to employee benefits. Provost says that the Department has been talking about this topic for years, and he says they continue to have conversations with a number of captive owners about this subject. However, he notes that few have taken the leap.

The majority of companies that have chosen to use their captives to reinsure some portion of their employee benefits have selected Vermont as their domicile. However, to date, it has only been about a dozen or so companies. He says that the financial aspect of using a captive with employee benefits is the easiest part of the issue. He believes that the real problem and the biggest roadblock is a concern about reputational risks.

Provost opines, “While it can make sense from an economic standpoint, many companies are concerned about making a mistake with regard to a benefit that an employee may be entitled to.” He points out the last thing that any company wants is to be viewed as having problems with its employee benefits. Hopefully, this is an issue that can be resolved and companies can begin to move more aggressively to add the employee benefits to their captives. Obviously, this is a potentially large growth area for the captive industry, and with Vermont getting the lion’s share of the current crop of business, it represents a significant potential for the State.

Conclusion

Filling the shoes of an 18-year leader isn’t easy, but it appears that Vermont has found a worthy successor. David Provost is a bright guy who has seen the captive industry from a number of vantage points. Provost is a native son, who is committed to keeping Vermont on the leading edge of the captive insurance industry.

“We have to work hard every day to maintain that leading edge position,” he points out, and it will continue to take the joint effort of all the players, the “entire infrastructure of the Vermont captive insurance industry” working towards this common goal. But it is Provost’s charge to make certain that it happens, and from all appearances he will be up to the challenge.

Bottom line, as Provost puts it: “Obviously, it is difficult losing someone like Len Crouse, but there is a great deal of continuity within the Captive Insurance Division. And, it is a testament to Len’s management style that he is leaving the Division in good hands, with people he trained.” It is this continuity within Vermont’s Captive Insurance Division that is made up of 26 employees that will allow Vermont to retain its position at the head of the pack. *

The articles on pages 49 through 57 were written by Michael J. Moody, MBA, ARM, a Rough Notes columnist and the managing director of Strategic Risk Financing, Inc. (SuRF).