As ‘captive insurance’ leader, DC empowers companies and saves them money

The nation’s capital has become a leader in the “captive insurance” industry, giving companies more control over their insurance programs and helping them save money.

It was in 2001 that the District licensed its first ever captive insurer.

Since then, the city has earned a reputation of being among the most successful U.S. jurisdictions for captive insurance.

“A captive insurance company is owned by a single company or organization or a group of companies, and it is used to only provide insurance for its owner or owners,” said Dana Sheppard, the associate commissioner of the risk finance bureau within the District of Columbia Department of Insurance, Securities and Banking.

Sheppard has been with the department for more than 20 years.

He and his team are knowledgeable and experienced captive insurance professionals dedicated to the reasonable and efficient regulation of captives.

They work with all of the major management, legal, accounting, auditing and actuarial firms in the captive industry.

“I always tell people, when you’re looking for a captive jurisdiction, you want to first look for a jurisdiction that has experienced regulators,” Sheppard said. “We have 10, full-time dedicated employees on my team, and all we do is regulate captive insurance companies.”

What makes a captive different?

A captive insurance company is essentially an in-house insurance organization that manages the risks of the parent organization or its affiliates, allowing companies to retain and finance their own risks instead of relying solely on traditional commercial insurance policies.

One of the key differences between a captive insurance company and a commercial insurance company lies in ownership and control.

A captive insurer is owned and controlled by the parent company or a group of affiliated companies, which gives them more flexibility and control over their insurance operations.

That lets the parent company customize insurance policies according to its specific risk profile, ensuring coverage that aligns with its needs and objectives.

“A typical commercial insurance company sells insurance to the general public, while a captive insurance company only provides insurance to its owners,” Sheppard explained.

Forming a captive insurance company provides several significant benefits for the parent company, according to Sheppard.

By establishing a captive insurer, the company can better manage its insurance costs.

Instead of relying on commercial insurance premiums, the parent company pays premiums to its captive insurer and retains underwriting profits and investment income that would otherwise go to external insurers.

That can result in potential long-term cost savings.

“The primary benefit is you save money,” Sheppard said. “You can reduce your insurance costs and save money by keeping risk as opposed to transferring it.”

The District takes the lead

Over the years, D.C. has licensed more than 300 captive insurance companies.

Organizations that have captives in the District include AARP, Amtrak, Fannie Mae, Freddie Mac, SpaceX, Goldman Sachs and Berkshire Hathaway.

“We have quite a few household names that people will recognize, and of course there are many other smaller organizations that people may not have heard of,” Sheppard said.

Washington, D.C. is among the most accessible captive domiciles in the U.S.

It is served by three major airports and Amtrak, making travel to and from D.C. in the same day very realistic for most captive owners and their service providers.

Setting up a captive in D.C. usually starts with the chief financial officer or risk manager of a company attending insurance conferences and talking with consultants and regulators to learn more about it.

They would then arrange a meeting or a call with Sheppard’s team to discuss the proposed business plan of the captive and obtain initial reactions from the District of Columbia Department of Insurance, Securities and Banking.

“That process can take a couple of months or it can take a year or more,” said Sheppard. “If they do decide to move forward, they complete the application process and then it only takes us three or four weeks to get it licensed.”

In preparing the application and supporting documents, the company must include a $500 application review fee and a $300 certificate of authority fee.

“If you decide to move forward, we do have a list of service providers, actuaries, auditors and captive managers who will talk to you at a high level just to see if it makes sense for you, and they won’t charge you for that,” said Sheppard.

Sheppard encouraged anyone interested in setting up a captive in D.C. to visit his department’s website.

“My contact information is there,” Sheppard said. “You can always just give us a call and talk about it, and we are happy to help you in any way we can.”

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