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Bermuda. However, as of 2020 more than 3,100 captives were domiciled in the U.S., with Vermont, Utah, Delaware, and North Carolina accounting for nearly half of that figure, according to A.M. Best. Since 2000, U.S. captives have topped traditional commercial insurers in operating performance, A.M. Best found, in part due to the perception by companies in need of insurance that underwriters overprice the company’s risks and fail to understand their business model. The highest growth of captives in the past 10 years has been domestic captives, and 39 of 50 states now have some type of captive law allowing captives to domicile in those states. ■ ■ Are captives expensive to form? The cost of setting up a captive has never been lower, and – if amortized over a five- year period – are well within reach for most AEC firms. Captives can actually provide a greater level of financial protection for firms than by taking a large deductible or retention through traditional commercial insurance. ■ ■ Can an AEC firm establish a captive program on its own? Yes, in theory. But just as any proper AEC project is best handled by AEC experts, the same concept applies to captives. Creating a successful program usually calls for working with experienced professionals that understand the intricacies of ERM, captive insurance, and the AEC industry. Zweig Group and Stephens Insurance have partnered to provide guidance on whether a captive program is right for your firm. ■ ■ What is the process? The process starts with a comprehensive evaluation of a firm’s current risk profile and risk management program. This includes gathering all pertinent data to develop a five-year captive financial model or pre-feasibility study, to show how the captive can integrate into your firm’s ERM plan. This data resembles information you provide for insurance quotes. After the model is developed, your firm’s key decision makers review it and determine whether to proceed. The next step is implementing the captive program, and securing authority from the chosen domicile. Your firm also should modify or restructure your pre-existing commercial insurance program to maximize your captive’s impact. ■ ■ How do we get started? To learn more about captive insurance and whether it may be right for your AEC firm, reach out to Zweig Group’s Dathan Gaskill at dgaskill@zweiggroup. com, or email Ted Grace at email@example.com. Ted Grace is executive vice president, Risk Management at Stephens Insurance. Contact him at firstname.lastname@example.org.
TED GRACE , from page 1
■ ■ What are the benefits of a captive? A captive affords the parent company more control than purchasing standard
insurance. The captive allows the tailoring of insurance coverage to meet the unique risks of the parent, particularly in cases where coverage might otherwise be unavailable or prohibitively expensive. Captives provide an alternative to the traditional means of financing enterprise risk. In general, captives can provide: Broader and bespoke coverages that often are unavailable in the traditional commercial marketplace Stability of insurance pricing and availability Cash flow through insurance company tax treatment and investment opportunities
Reduction in insurance costs Direct access to reinsurers
■ ■ How relevant are captives to architects and engineers? The AEC sector is changing rapidly because of pressure to build projects quicker and at lower cost, while adapting to an ever changing operating environment. Municipalities nationwide rely on facilities to provide sewer and water treatment, but struggle to find experts who can operate them properly. Municipal architects and engineers are increasingly being asked to design, build, operate, own, finance, and manage wastewater facilities. This brings new risks that current insurance policies may not address. Some municipal architects and engineers are self-funding captive programs to fit their needs before taking on this type of project. ■ ■ How relevant are captives to the construction industry? Captive insurance has been available to the construction industry for quite some time. With most construction companies, the need to address and manage third-party risks, such as those related to subcontractors, is essential. For safety-conscious, best-in-class risk management focused construction companies, captives can provide a cost-effective approach including owner-controlled programs, contractor- controlled insurance programs, and construction defect and warranty rework exposures. ■ ■ Where are captives domiciled? Captives were once almost exclusively domiciled in locations like the Caymans and
2022 AEC EXECUTIVE ROUNDTABLE The 2022 AEC Executive Roundtable is a unique opportunity for AEC firm leaders to engage and interact with industry peers to discuss current issues facing firms today, explore industry trends and next practices, and confront the biggest challenges they face leading their firms. Through a combination of short informative presentations and panel discussions, along with multiple topic focused roundtables, this event will allow leaders to truly find the knowledge and insight they are looking for. See you this June 22-24 in Dallas. Click here to learn more!
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THE ZWEIG LETTER MARCH 21, 2022, ISSUE 1433
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