Public entities are a special kind of institution in that they are governed, primarily, by the public. Every dollar spent is reviewed; every decision made is subject to scrutiny. The Los Angeles Unified School District (LAUSD) knew that when it decided to form a captive, its members had to be certain they were crossing every T and dotting every I. 

“We have a big program,” said Melissa Hollingsworth, chief deputy officer of risk management at LAUSD.  

She isn’t exaggerating: LAUSD is the largest school district in the state of California and the second largest school district in the country. Servicing grades K-12, LAUSD stretches across 710 square miles and educates more than 500,000 students each year.  

Forming a captive meant looking at the district’s risk appetite, its financial strength to back a captive, and what it would mean to take this large public entity into this new stage of risk management. 

“We have to be good fiscal stewards of taxpayer dollars,” Hollingsworth said. “At the end of the day, it’s about the kids. Being able to strategically be stewards of those taxpayer dollars allows us to reinvest back into the kids.” 

The team knew a captive could do that—save dollars and cents that would go back into the programs and education of the students in their care: “We knew operationally standing up a captive with the amount that we were paying in premiums and claims just made sense,” said Hollingsworth. 

LAUSD got to work. 

Public entities are primed for captives 

It’s no secret today’s risks are becoming increasingly challenging. Climate change, cybersecurity, talent shortages, infrastructure, geopolitical tension, increasing litigation, compliance and regulatory changes—the public sector is not immune. 

“Large public entities [like LAUSD] have large risk exposures, not unlike a commercial enterprise,” said Jason Palmer, director, Willis Towers Watson, Global Captive Practice. “Both want to do the best with their dollars for their insurance spend.” 

Taking on certain risks through a captive becomes an increasingly appealing option. 

According to Jim DeVoe-Talluto, assistant director of captive insurance, Department of Financial Regulation-Captive Division, State of Vermont, more public entities, like LAUSD, are looking at captives as a risk management alternative. 

“We are seeing, increasingly, jurisdictions such as school districts, municipalities and counties saying that they are large enough and have enough risk and commercial exposure—and their deductibles are high enough—that developing a captive program is not only feasible but also within scope,” he said.  

They are looking at captives as a way to formalize their risk structure and have access to the reinsurance market.  

“All of these factors are playing into creating a robust market for captives for these types of entities,” DeVoe-Talluto said.  

For some perspective, looking at Vermont’s 2025 applications to date, 12% have come from public entities, the first time in the last five years that this sector has represented more than 10% of captive applications.   

“We are also receiving inquiries across a broader range of public entity types,” DeVoe-Talluto shared. “While public universities have typically been well represented historically, we are now seeing interest from municipal and county governments, K-12 districts, and regional public entities as well, such as transportation authorities and solid waste districts.” 

LAUSD, as mentioned, is a very large entity. It had the infrastructure, built-in governance, and accountability to its constituents and taxpayers to launch its captive in June 2024. Now, a year later, the captive houses the district’s workers’ compensation, general liability and parts of its property program, with the intention to expand. 

“I’m looking to add cyber and OCIP, with eventual plans that we’ll put our health and benefits in,” Hollingsworth shared. 

The captive has also showed promising results moving forward, having saved LAUSD hundreds of millions in premium costs in just a single year.   

Forming and nurturing a captive 

LAUSD’s decision to create a captive started a decade ago, but recent events, including California’s prominent wildfire season and the ever-increasing nuclear verdict landscape, drove the need home for investing in risk transfer alternatives. 

“There are risks the district faces on a daily basis, and then there are these much larger challenges, especially wildfires and nuclear verdicts related to SAM [sexual abuse and molestation] coverage,” Hollingsworth said. 

Just this year, 14 destructive wildfires affected the Los Angeles metropolitan area, resulting in an estimated $250 to $275 billion economic loss. Property damage, business disruption, and human safety were the key concerns in its aftermath. 

“When we were trying to see which lines would be most feasible to put into the captive, property was one that worried me, particularly when the wildfires hit,” Hollingsworth said. But the way the captive had been set up, and the way it has since been managed, provided LAUSD with the tools it needed to manage through trying events. 

WTW’s Palmer has been with the captive since its feasibility study all the way to its formation, now serving on its day-to-day captive management team for the program. He said what initially drove interest was the district looking for a way to round out the insurance program. He’s since seen the effort behind LAUSD’s decisions around forming this captive and launching it. 

“The district wanted it so that everybody was comfortable with the liabilities that needed to be established, with the funding of those liabilities, with investing the funds in a more advantageous way, and then utilizing the program to launch into other lines of business,” said Palmer. 

“What the district didn’t want to have happen was, all of a sudden, a series of losses wouldn’t be funded, and then they would have to search for that funding elsewhere—and at the expense of the kids,” said Palmer.  

“Putting proper governance and structure around the use of public funds is benefiting everybody.” 

The efforts have proved well placed. Part of it comes down to working with Vermont captive professionals, who help maintain the captive and keep it current with regulations. 

“Our team of regulators is evaluating each captive in our jurisdiction,” DeVoe-Talluto said. “We’re looking at the actuarial projections to understand that each risk is properly valued. Each asset is obtaining an audit. There’s a second set of eyes there to understand that the liabilities and the assets are segregated specifically for the risk.” 

For a public entity beholden to taxpayers, this is another layer of assurance. The LAUSD captive is not just a structure in place; it’s a part of a regulatory system of checks and balances, ensuring it’s acting properly as an insurance company while giving the LAUSD community the risk assurance needed. 

The who’s who in captive team building 

No captive can thrive without the right people cheerleading its efforts. Case in point, Palmer said the LAUSD captive has continued to grow under Hollingsworth’s steadfast dedication.  

“I began my risk management career as a captive owner in the private sector and have since made the pivot to public entity captives over the last decade and a half because they’ve gained a tremendous amount of traction,” Hollingsworth shared. 

“I came into the LAUSD program a few months into it already being established. My job is to help mitigate the risks that the district faces on a daily basis,” she added. 

According to Palmer, however, Hollingsworth’s entrance into the program was more than a job accepted; it’s what LAUSD needed to push its captive forward. 

“It came down to having a cheerleader on the team, someone who could push its concept forward with various stakeholders within the district,” Palmer said. “When I was first interviewed for the engagement, there was a lot of discussion about the feasibility studies, over and over again. But there was always a level of, how do we get this done?” 

As a broker and captive manager, Palmer could only provide external assistance. LAUSD needed that internal push from someone who understood captives and celebrated their cost savings and risk management capabilities. 

“That was Melissa,” he said. 

DeVoe-Talluto concurred. As someone who oversees many captive programs, one thing remains true for all: “It’s very important to have a captive champion. Someone who has the skill and passion to present the argument in a meaningful way to key constituents.” 

Having captive experts managing the program is also key when building out the team. Palmer came in with LAUSD during its initial feasibility study, reviewing the financial side of things as well as offering comments on how to bring the program to life.  

After that, finding a home for the LAUSD captive became paramount in licensure.  

A captive haven in Vermont 

Vermont is a leading U.S. domicile for captive insurance companies, with 30 new licensed captives as of June 2025, and growing. It has been a top global domicile for decades, with a strong regulatory environment and a well of knowledge and expertise within the state. 

When it came time for the LAUSD to decide where to house its captive, Vermont just made sense. 

“The district wanted to go to a location that was well known in the captive industry,” said Palmer. “They wanted to be in a pair of safe hands.”  

DeVoe-Talluto has been with the division for 20 years. He’s seen the vast growth within the state, as well as quality of captives applying and licensing there. For LAUSD, DeVoe-Talluto said he saw the district had the capital there to succeed as a captive. The final push was in bringing on the inhouse, year-round captive expertise from Hollingsworth. 

“When something’s new, and you’re trying to learn the ropes, and you are heavily relying on service providers without any internal expertise, it can be a real challenge for your case,” he said. “But when someone in the organization has the captive knowledge, it can get it over the finish line.” 

LAUSD is excited for the next phase of its captive, as well, with a July 1 renewal quickly approaching. The goal will be utilizing the captive and leverage it as the district moves into its sophomore year.  

“The evaluation of other lines of business and how the captive can be expanded to cover those lines of business to provide even more value to the program will be on deck next,” Palmer said. 

“Not only has the program provided its initial value, but it’s also continuing to provide value going into the next renewal,” Hollingsworth said. “With an organization of our size, and our responsibility to the public, we’re committed to continuing this journey, all in an effort to give it back to the kids.”

This article was originally published by Risk & Insurance in their 2025 Vermont Report. You can view the original article at https://riskandinsurance.com/lausd-a-success-story-in-public-entity-captive-formation.