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Prospects for growth in the captive insurance industry are bright, and those opportunities will be plentiful abroad, according to Ernst Csiszar, the former head of the National Association of Insurance Commissioners.

"In this segment of the industry, you do have more freedom, and you can go offshore," said Csiszar, who also served as the South Carolina insurance director from 1999 to 2004. "We'll see more captives. I'm excited about the growth prospects of this industry, but growth will be offshore, not onshore."

Those experts representing onshore domiciles disagreed. The past two years have seen a number of captives move back to the United States as big companies want to make sure they follow federal insurance rules to the letter of the law in the wake of embarrassing and expensive investigations into the practices of some insurance companies.

"We used to lose in the old days a lot of captives to Bermuda because they wanted to go offshore," said Derick White, director of captive insurance for the Vermont Department of Banking, Insurance, Securities and Health Care Administration. "It was sexy. They wanted to go Bermuda or the Caymans. Now it's just the opposite."

Vermont is the leading onshore domicile. It registered 37 new captives in 2006, the same as in 2005. There are a total of 780 captives licensed to operate in the state, with 580 listed as active.

Captive experts agreed with Csiszar, however, that as a rule state and federal government regulators would leave the captive insurance industry alone. Many in Congress simply don't understand this niche of the industry, they said.

But as for the rest of the rest of the insurance industry, the future is rather bleak when it comes to regulation, said Csiszar, former CEO of the Property Casualty Insurance Association of America and now a director with a Florida-based construction company.

"Regulation is thriving," he said. "At this rate we will have more and more regulation. Each regulation is a new tripwire, a further restriction to what we've had before."

Because insurance companies are regulated by the states, each company has to deal with 50 separate regulators. Yet the alternative, a federally regulated system, isn't much better, said Csiszar. The federally regulated banking industry, for example, has to deal with a phalanx of agencies.

Whether regulated by a federal or a state system, the laws will encourage companies to register their captive offshore unless lawmakers offer the industry some relief, Csiszar said. But even he admitted that that was unlikely given the public's propensity for government help.

"We don't seem to understand that the government is there for certain roles--defense, roads, airports," he said. "But it is not there for us to recover from every storm."

May 1, 2007

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