Many of you may have read or heard about a recent article in the New York Times that was highly critical of what it characterized as a “shadow insurance industry”. It is disappointing and frustrating to try to respond to an article that clearly doesn’t understand the concept of captive insurance, completely misses the point that captive insurance is a highly regulated industry utilizing regulator approved conservative investments, and poses no danger to the unsuspecting public because it is, at its core, a self-insurance device.
As noted in the article, approximately 30 states within the US and dozens of domiciles throughout the world have welcomed the formation of captive insurance companies as a vehicle for companies and groups to serve their own insurance needs rather than relying on the commercial insurance market that may or may not meet their needs.
Each captive domicile has a set of regulatory protocols designed to evaluate each captive’s financial strength, which almost always includes an independent, state-approved actuarial analysis of insured losses. The history of captive default is almost non-existent and any loss falls on the owners of the captive, not the government. Captives are not “financial wizardry” as the article claims. Rather, they are simply a method for companies to formally fund and self-insure a portion of their risks.
After consulting with a number of people, the CICA Executive Committee, along with others representing the captive insurance industry, has concluded that it would be futile and counter-productive to respond directly to the New York Times, both because it would give the original story “legs” and it is impossible to correct a story with as many misunderstandings and conceptions as the original story. One thing not mentioned in the New York Times article was the fact that the Times itself owns a New York domiciled captive insurance company!
About the Captive Insurance Companies Association
CICA is the only domicile-neutral captive insurance association. Founded in 1972 by risk managers for their collective benefit, CICA works to provide the foremost education, networking and leadership for captive and risk retention group professionals. Through CICA’s personal network focused on the common issues that concern captives and risk retention groups, members are constantly exploring new ways to broaden the use of their captives to increase flexibility in program design, stabilize long-term program costs and increase access to both domestic (U.S.) and offshore reinsurance capacity.
Contact: Dennis P. Harwick, CICA President
Captive Insurance Companies Association
4248 Park Glen Road
Minneapolis, MN 55416
# # #