Vermont 2015

The Surprising World of Nonprofit Captives

They comprise fully one-quarter of all captives domiciled in Vermont.
By: | April 8, 2015 • 5 min read

Pamela Davis recalled a conversation she had the other day with someone not familiar with nonprofits. When the individual heard what Davis does, that person asked:

“Do they even need insurance? Do they even have employees?”

“I didn’t even know where to start,” said Davis, the founder, president and CEO of Nonprofits Insurance Alliance Group, a captive reinsurer for nonprofits.


Nonprofits’ operations often expose them to complicated risks, which is why many nonprofits belong to and operate their own insurance companies — captive insurance companies.

More than a quarter of all active captives in Vermont are owned and operated for nonprofits. This is old news to some. Church Mutual Insurance Co., now a fully admitted insurer, traces its roots to a captive conceived of by 10 Lutherans in 1897. Catholics had them beat by a few years when they founded the Catholic Mutual Relief Society of America in 1889, now Catholic Mutual Group.

The Episcopal Church’s current captive dates back to 1913, and the Seventh Day Adventists’ back to 1936. A 20-something-year-old captive like the National Catholic Risk Retention Group Inc. is a neophyte amid this crowd.

Land trusts have flocked to captive insurance as well. Launched in June 2012, the Terrafirma Risk Retention Group LLC now serves 474 land trusts and insures 7.2 million protected acres.

Leslie Ratley-Beach, conservation defense director of Land Trust Alliance

Leslie Ratley-Beach, conservation defense director of Land Trust Alliance

The land trust leaders who organized the captive needed a risk management tool to provide nationwide coverage, to be flexible enough to handle the multiplicity of claims that arise, and to always be there to defend the trust in court. Commercial and traditional insurance didn’t fit the bill.

“The only thing left was captive insurance,” said Leslie Ratley-Beach, conservation defense director of Land Trust Alliance, where she led the establishment of Terrafirma RRG.

A Custom Fit

For Michael J. Bemi, president, CEO and director of National Catholic RRG (who kindly provided that long history of religious captives above), nonprofit organizations seek the same benefits from alternative risk transfer as do for-profits — namely, adequate insurance capacity, quality of coverage in terms of appropriate terms and conditions, and consistency and affordability of premium levels — all over the long haul. On top of that primary list, add the opportunity to gain control over underwriting profits and investment earning, or at least a larger share of them.

The driver for National Catholic when it first formed in 1987, however, was not to derive profits.

“When we formed, the market was a total disaster,” Bemi said.

Davis, whose Nonprofits Insurance Alliance Group consists of three self-insurance entities, recalled the insurance market a quarter-century ago as “complete chaos.”

After surviving numerous hard and soft cycles in the traditional insurance market, captive owners such as Bemi and Davis came to appreciate another captive benefit: loss control and claims management.

For nonprofit captives in health care, the benefits of loss control and claims management have become an operational imperative. Good insurance and risk management equates to top-notch health care delivery, explained C. Richard Cornelius, who oversees two health care-related RRGs in Vermont: Indiana RRG and Heartland RRG.

“When we formed, the market was a total disaster.”– Michael Bemi, president, CEO and director, National Catholic RRG

In Cornelius’ experience, that means empowering individual risk managers — giving them a platform and the tools to effect change in their organizations. “I have always been a believer in a very strong, robust risk management program,” Cornelius said.

The health care industry in general became a believer after its professional liability insurance crises in the late ’70s and early 2000s. Nearly every major U.S. hospital system operates some form of self-insurance program and/or captive, said

Cornelius, and alternative risk transfer has increasingly become the insurance prescription for smaller, community-sized entities. As much as half of all medical-malpractice exposure in the U.S. is underwritten by captives, he said.

The attraction of quality claims management is especially important because of the rising tide of litigiousness in the United States, which has hit nonprofits as hard as every other type of organization.

“There is no reticence anymore to sue the church,” Bemi said.

For Cornelius and his health care insureds, the cost of litigation and claims management are an ongoing battle between two extremes — between a hospital appearing like a pushover ready to whip out its checkbook, and one appearing unfair to patients who’ve suffered an indefensible incident. Most cases are in the tricky, gray area in between.

Another looming threat is the ever-present charm offensive put on by the commercial marketplace.

If a big commercial carrier wants a certain type of business, they can cut prices and throw in coverages that captives may be unable to unwilling to entertain, said Bemi. Most captives don’t have the cash or the marketing resources to compete in a long, heated battle with traditional market players.


While Bemi hasn’t seen any commercial market incursions into his space yet, Cornelius sounded less sure. In health care, the cost of premiums has been suppressed for the last half-dozen years.

“Most people believe you have cycles, and you have had two [hard markets]. It’s got to happen again, right?” he said.

It hasn’t. That puts pressure on captives and RRGs to flatten costs and continue to offer valuable coverages, terms and risk management services.

Busting the Myths

One misguided notion about captives is that nonprofit insurance buyers are seeking tax avoidance. Since they don’t pay taxes, they clearly are after other benefits captives have to offer.

They’re also by and large keeping it onshore, in U.S.-based domiciles such as Vermont.

“There really is no reason to go outside the United States … pure and simple,” Cornelius said.

That isn’t just a budget issue, it can be a political one too. Flying executives to the Caymans or Bermuda could easily seem like a boondoggle to donors or an easy target for newspaper reporters.

Nonprofit captives also have their parent companies’ mission-driven nature to account for. “These are American land trusts conserving land in America,” Ratley-Beach said.

Here’s another myth: Nonprofits can’t bank enough surplus or wield enough risk management staff to self-insure, let alone launch a captive. Try telling that to Davis’ Nonprofits Insurance Alliance Group and its 13,000 member nonprofits.
These 501(c)(3) public-benefit organizations tend to be tiny yet complex for their size.

They pay little and ask their small staffs to handle stressful situations. They work with fragile populations. They tend to operate in vacuums left by “market failures” — e.g., homeless shelters — in neighborhoods that are far from pleasant. It’s no wonder that the commercial insurance market dried up for them 25 years ago.

Underwriters either had rules that prohibited writing nonprofits, Davis said, or they offered cookie-cutter coverages.

“Part of what we have been able to do is [create] coverage forms and loss control specific to this sector,” Davis said. Years ago, this included affirmative sexual abuse policies; today they include theft and injury coverage for volunteers.


Claims management services are a boon to smaller nonprofits. For those without in-house HR expertise, the captive offers “employment risk managers” (employment law attorneys) who can help manage incidents and defense claims.
On the loss control side, they can answer tough employment law and even D&O questions.

Do those benefits sound familiar? Yes, these are the same captive benefits that the largest nonprofits have sought for over a century — and the largest for-profit corporations, too, for nearly as long.


Complete Vermont 2015 Coverage:

04012015_vermont_tipin_profile_150pxBuilding an Engine for Global Risk Management Success.  A fully integrated captive brings risk management to the multiple arms of an organization.


04012015_vermont_tipin_noprofit_church_150The Surprising World of Nonprofit Captives. They comprise fully one-quarter of all captives domiciled in Vermont.


Lawmakers returnTrue Partners. The success of the captive industry in Vermont is the result of a rare, collaborative relationship between the public and private sectors.

Matthew Brodsky is editor of Wharton Magazine. He can be reached at
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Vermont 2015

True Partners

The success of the captive industry in Vermont is the result of a rare, collaborative relationship between the public and private sectors. 
By: | April 8, 2015 • 8 min read
Lawmakers return

Life is hard for most bills. It’s not easy to become a law.

“How I hope and pray that I will, but today I am still just a bill,” is the sad refrain of one of the more famous bills of all, Bill from the classic Schoolhouse Rock skit, “How a Bill Becomes a Law.”


That Bill waited for what seemed like an eternity to 8-year-olds everywhere watching the 1970s kids program, as he went from an idea to a bill stuck in committee to one languishing on the steps of the Capitol, worried that he would get the presidential veto.

If only Bill grew up to be the Vermont captive law. He would live a charmed life and be touted around the captive insurance world as the gold standard. Every year, he would get a makeover in a process of legislative improvement that is the epitome of bipartisan, productive policymaking. He would never experience rancorous, political sausage-making, never suffer the horrible fate of being tabled in a subcommittee to a subcommittee. Real Vermont captive law upgrades have succeeded nearly every year since the creation of the Vermont domicile in 1981.

VIDEO: Vermont Gov. Pete Shumlin talks about the captive industry in his state.

The Vermont captive law is a manifestation of one of the most constructive and successful private-public partnerships in the U.S. financial services industry. Communication channels between captive owners and managers, Vermont’s financial regulators and members of the state’s legislative finance committees are proactive and ongoing.

The result is, and has always been, that everyone benefits — the people of Vermont who enjoy a robust industry of well-paying jobs, captive owners who get the stringent but fair regulation they’re seeking, and the state treasury and its flow of tax income.

The Process, Revealed 

Just as that poor Bill in Schoolhouse Rock, Vermont’s captive laws begin each year as ideas, which are then hashed out, refined, tested and codified by the legislative process.

“Updating and improving our captive law is a Vermont tradition. We do it virtually every year. It is evidence that we never rest on our laurels as we are always trying to improve upon the previous year,” said Dan Towle, director of financial services at Vermont’s Agency of Commerce & Community Development.

Each fall, the Vermont Captive Insurance Association (VCIA) presents the state’s Department of Financial Regulation (DFR) with a “wish list” of items, alterations the industry would like to see in the law. The VCIA solicits ideas from its members through a survey, as well as in individual meetings with leaders from the captive management community, said VCIA President Richard Smith, who with his team then distills the industry’s top priorities.

“Sometimes we push the envelope,” Smith said of the ideas they bring to the regulators.

Deputy Commissioner David Provost mentions any concerns he has about these VCIA recommendations, Smith said, though the commissioner’s style is to rarely say “no” outright and instead always be open to how an idea might work.

In turn, chief captive regulator Provost and his DFR Captive Insurance Division team bring their own ideas to the table, along with any changes necessary to the law to maintain accreditation with the National Association of Insurance Commissioners.

Through this meeting of minds, both groups of stakeholders trim and tighten the wish list until it takes on the form of a proposed bill that both sides can support and present to state lawmakers.

Dan Towle, director of financial services,  Vermont Agency of Commerce & Community Development

Dan Towle, director of financial services, Vermont Agency of Commerce & Community Development

“It’s a very collaborative process,” Towle explained. “It is part of the reason we are so successful in Vermont. If a change is proposed we keep an open mind to the proposal. If it makes sense, the proposal is fully vetted before it would be introduced in legislation.”

“We make sure that our regulators and our captives talk to each other,” seconded state Rep. Bill Botzow, a Democrat from Bennington and the chair of Vermont’s House Committee on Commerce and Economic Development.

“This gives the captives the highest assurance that as they undertake their work, that they are safe.”

These ideas take the first big leap toward becoming law when regulators present them as a draft bill to one of the committees of jurisdiction, the House Committee on Commerce and Economic Development or the Senate Finance Committee, whichever takes up the bill first. (In the case of the 2015 bill, the Senate Finance Committee had first crack.)

As Provost related the process, his team does not just place the bill before the legislature and then disappear to their offices a few blocks down the street. Regulators remain on hand to summarize the bill for legislators or even walk them through it, line by line, if necessary. They point out the significant changes of the year and their rationale. Said Botzow, lawmakers know a bill arrives in the state capitol well vetted by the time they see it.


The first committee then presents the bill to the full House or Senate, respectively, where it passes and travels to the next chamber for further consideration. Thereafter, it is christened into law with the flourish of the governor’s pen. Gov. Peter Shumlin, it should be noted, is an important member of this public-private success story, and the state’s executive has always been, whether Democrat or Republican.

That doesn’t mean, though, that the bill isn’t made to proverbially sweat a bit. Lawmakers give it more than a once over; they ask questions and make their own revisions. They are partners in the process, and they take responsibility for their constituents’ and the state’s well-being.

“ ‘Politics as usual’ in Vermont is a bit different from some other places. We may have our differences of opinion, but we move things along.” —  David Provost, deputy commissioner of captive insurance, Vermont

“Our legislature and governor are very savvy about captive insurance. We expect to get the tough questions when we testify before the legislature. They too take an ownership in our success in Vermont,” Towle said.

One might expect American politicians to take their jobs too seriously — or at least their political views and party lines too seriously — but perhaps the most amazing quality of the Vermont system is that it’s not afflicted with the venomous gridlock that stymies public policy in other locales and at the federal level.

Part of the reason is that Vermont politics in general doesn’t reach that level, according to insiders — even in an election cycle that saw the governor’s race so close that the legislature decided it and the loser threatened to challenge the results.

“ ‘Politics as usual’ in Vermont is a bit different from some other places,” Provost said. “We may have our differences of opinion, but we move things along.”

Another explanation has to do with how well lawmakers are educated about the importance of the captive industry. In 2013, the state reaped more than $27.4 million in premium tax benefits and related industry fees, and by the most recent count, the industry has created more than 1,400 jobs in the state.

The industry itself is so well established in Vermont that even if incoming lawmakers don’t understand the technical aspects of captives, they are familiar with their positive impact, explained Smith.

In part, that’s because the industry does a good job of delivering that message to lawmakers, both incumbents and newly elected. Each January at the start of the legislative session, VCIA brings industry representatives to Montpelier. Experts present on captive basics and benefits, and captive owners testify to the successes of their alternative risk transfer vehicles.

“It’s a day for us to go up and wave the captive flag,” Smith said.

Even for an experienced legislator like Botzow, face-to-face time with captive leaders allows him to catch up on the state of the industry both at home and abroad, on the influx and outflux of captives to Vermont, best practices on how captives are reserving and other pertinent information. If the industry reps and regulators miss something, elder statesmen do their part to bring their younger colleagues up to speed.

One group in this public-private partnership that needs no refresher on captive basics is the regulatory team. Since the industry came into being with the very first captive law in Vermont in 1981, only three individuals have served as its regulatory leader.

That speaks to a consistency of vision and application of the law. It’s this depth of experience and long timeframe, said Smith, that also explains how Vermont captive regulators have built such relationships and reputations in Montpelier, as well as among captive owners and managers across all domiciles, onshore and off.

The other group, of course, are the for-profit and nonprofit organizations that own Vermont’s captives, as well as the vendors who offer accounting, actuarial, legal, captive management and other services. One main reason Vermont’s public-private partnerships work is that these organizations value the firm but fair, gold standard regulation, said their chief representative Smith.

Ultimately, what derives from such sound public policy is an exemplary system that is always being improved upon. In 2014, for instance, the new captive law featured two significant changes related to captives’ dormant status and reciprocal insurers.

Expect five alterations to come out of the 2015 captive law. As Provost reported at the writing of this article, the wish list included:

  • Reduction in the number of necessary incorporators from three to one.
  • Lowering of the minimum capital and surplus of sponsored cell companies, and allowing marketable securities, as well as cash, to satisfy minimum capital and surplus requirements.
  • Adding naming conventions to incorporated cells.
  • Providing more explicit protections for the cells and the sponsors.
  • New corporate governance standards for risk retention groups to ensure they are member-owned-and-operated insurers.

The changes reflect the drive to remain in line with the latest regulatory developments and in touch with the reality on the ground.


For instance, the new capital and surplus levels for sponsored cells reflect the fact that most cells are fully funded and that capital in the core company isn’t as much of a concern.

At the time of this writing, the 2015 bill had not yet become law and these changes hadn’t gone into effect, but odds are they will soon.

As Smith recounted, he’s had lawmakers ask him, “How can we do this with other business issues?”



Complete Vermont 2015 Coverage:

04012015_vermont_tipin_profile_150pxBuilding an Engine for Global Risk Management Success.  A fully integrated captive brings risk management to the multiple arms of an organization.


04012015_vermont_tipin_noprofit_church_150The Surprising World of Nonprofit Captives. They comprise fully one-quarter of all captives domiciled in Vermont.


Lawmakers returnTrue Partners. The success of the captive industry in Vermont is the result of a rare, collaborative relationship between the public and private sectors.


Matthew Brodsky is editor of Wharton Magazine. He can be reached at
Share this article:

Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit

Berkshire Hathaway Specialty Insurance ( provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.



This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Berkshire Hathaway Specialty Insurance ( provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
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