(Host) Commentator Tim McQuiston is here today with some thoughts on one of Vermont’s largest but perhaps least known industries.
(McQuiston) How about this for an industry. It employs more than a thousand Vermonters. The average pay is almost twice the average state wage. Just in fees, it pays about $20 million into the state’s general fund, and that doesn’t count income and sales and all those other taxes we all pay. Nor does it take into account how many pints of Ben & Jerry’s those thousand employees enjoy, or cups of Green Mountain Coffee they drink, or how many lift tickets were bought at Killington for riders using a Burton Snowboard.
And this industry is as clean as a new suit. It sounds too good to be true, doesn’t it? But it’s a fact that Vermont is the largest domicile for captive insurance companies in the United States. We’re the Detroit of the auto industry, the Texas of oil, the California of movie stars.
Except more so. You see, Vermont hosts the corporate headquarters for more captive insurance companies – over 700 to date – than all other states combined. More than $7 billion in premiums pass through these companies. If Vermont were a country, it would rank number three in the world. The other two are Caribbean countries. Yuh. Don’t get me started on that whole “off-shore” thing.
A captive insurance company is simply a subsidiary of another company that is big enough to self-insure. Most companies aren’t big enough to carry that kind of risk, but there are plenty who can, like Microsoft, Dupont, and, yes, even Enron. The benefit to them is that they don’t have to pay another company to carry their insurance. They pay themselves.
While the actual company isn’t in Montpelier, just its headquarters on paper, the industry itself requires a lot of local lawyers, accountants, bankers and management companies. The state of Delaware has done the same thing with corporate headquarters. Most of the larger corporations in the United States are technically headquartered in Delaware.
Other states are trying to get a piece of what is a growing captive insurance pie. But everyone in the industry acknowledges that with Vermont’s regulatory, legal, banking and tax structure – and a more than 20-year history of hosting these firms – that we will long remain the king of the captive insurance mountain.
Governor Snelling was the genius behind developing the industry in 1981. Governor Dean carried its water and strong-armed the Legislature to develop a conducive environment in which it would thrive. 2003 was its best year and 2004 looks like it will break the record for new licenses. Burlington just hosted the annual captive insurance conference, which drew over a thousand attendees.
The success of the captive insurance industry begs this question: Are there any other golden eggs out there? The answer: You bet there are. But who is going to be the genius to recognize it?
This is Timothy McQuiston.
(Host) Timothy McQuiston is editor of Vermont Business Magazine.