By CYRIL TUOHY, managing editor of Risk & Insurance®
John Svoboda, president of the National Home Insurance Co. risk retention group, will take over as chairman of the Captive Insurance Companies Association for a one-year term at CICA's annual meeting, from March 13 to 15 in Tucson, Ariz.
In an interview with Risk & Insurance®
Managing Editor Cyril Tuohy, Svoboda talked about some of the most important issues facing CICA as the captive industry navigates through a soft market.
Q: John, you have a session at this year's conference devoted solely to risk retention groups (RRGs). What
does the immediate future hold for RRGs?
A: RRGs are a great success story stemming from the initial legislation that was passed in response to the product liability crisis in the 1970s. RRGs since then have met the objective of the legislation, which is to find ways to cover risk as the traditional market's appetites change. The area of interest right now is to expand the coverage RRGs can underwrite to include property coverage, not just casualty.
With the change in the House of Representatives in November, we have to take a new look at who we're dealing with following the retirement of U.S. Representative Dennis Moore of Kansas. U.S. Sen. Jon Tester from Montana, an RRG domicile, has agreed to sponsor legislation expanding RRGs beyond the initial mandate of the National Risk Retention Act.
RRG issues don't fit in the red or blue divide, so I don't know that the changes in the political landscape will mean all that much.
We here at CICA can provide a lot of support to RRGs in that area. There's the ongoing challenge to RRGs from individual state insurance departments, which have their own views and interpretations of the scope of the NRRA and don't want to give up their power. They are representing a challenge to RRGs in violation of the federal NRRA, so we're looking for a common dispute-resolution venue and we're looking to give states a clear direction to follow. If there was a venue for an efficient dispute-resolution process, those type of challenges could be resolved quickly at a reasonable cost and that would benefit all risk retention groups. Don't forget, also, that the GAO is currently studying the effectiveness of RRGs.
Q: In an interview last year, your immediate predecessor Chairwoman Karin Landry said she wanted to double the membership of the organization to about 1,000 members. Where does organization membership stand now?
A: CICA's membership is at an all-time high. Taking into consideration the downturn in the economy, it's really a good accomplishment. We will continue with focus on attracting new members. In terms of individuals being members of CICA, we are in the high 300s. Since some individuals represent more than one captive the number of captive organizations that are members of CICA is about 1,000. We've established a membership committee to focus on growth and to focus on how best to serve the membership.
For example, we've recently created a new category that we believe will attract new members. That category is for people who have been in the industry but now have retired or have been subject to downsizing.. The idea is that they remain involved with CICA. They have a lot of knowledge and a lot of institutional memory, and it's in the industry's interest to have them involved with CICA.
Another target group is the younger generation, and how we get them involved in CICA. Historically, members have been senior managers with parent organizations that have set up captives. We want to attract that younger member, who often is not involved in that senior level. We are going to take a close look at that and perhaps develop a new category of membership around those potential members.
Q: Now that you are about to step into the shoes of chairman, which of those areas, if any, are you looking to continue with, expand, or trim back? And why?
A: We want to be recognized as the resource, not only for CICA members but for the industry as well for alternative risk solutions. We want to be a reference point for members and anyone else involved in the industry as the place to go for education and information regarding where to find resources for feasibility studies, captive management, claims handling and focused risk management.
We now have two volumes of the best practices guide that we will be presenting at RIMS. Remember that CICA's value is that it is the only domicile-neutral forum, and that's very important. We are completely neutral, and that's the message we want to send.
Q: There was talk last year about creating more internal board committees to guide CICA's strategic planning and technology initiatives. Have those committees been created? What technology initiatives can you point to that exist today that did not exist last year?
A: We recognize that our website is a bit outdated and in need of updating. We can, however, report that we're launching a new website that will be quite user-friendly. The website will provide a good platform for members and to communicate the latest developments in the captive industry. We're hoping to launch the revamped website by mid-March.
Q: Are members worried that in this soft market their captives may be at a disadvantage or in danger of closing or laying dormant? What are you telling your members to do to stay
competitive and relevant?
A: The cyclical nature of the industry is one of the reasons for which captives are formed. The benefits of a captive offer the owner pricing consistency and consistency in terms and conditions so as not to be subject to the cyclical nature of the traditional market.
There's not been any decline because, when captives are formed, there's generally been an analysis and research into forming the captive in the first place, and the benefits that this consistency brings, which is more consistent rates, better control of claim handling and focused risk management. In most cases corporate management sees that those benefits outweigh the short-term benefit of low premiums in the traditional market during those soft market years.
The one thing captives provide is a consistent approach, and if you decide to get into it, it is for the long haul in any case, and the benefits over the long term.
March 1, 2011
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