For over 35 years, Vermont has been a leader in the insurance world, with its legal and regulatory framework creating a thriving captive insurance industry. This was further enhanced by legislation signed by Governor Phil Scott on June 10 to enable InsurTech experimentation and innovation in Vermont. Among other things, the insurance and securities bill (S. 131) creates an InsurTech “sandbox,” which will allow more research and development in this area with specific guidelines.
The regulatory sandbox in S. 131 will provide the flexibility necessary to accommodate new concepts at the same speed as insurance technology develops. It does so by lowering or eliminating the hurdles facing this sector in bringing developments to market amid an insurance regulatory landscape that does not always accommodate such development.
According to Dave Provost, deputy commissioner in the captive division of the State of Vermont’s Department of Financial Regulation, “This law strikes the right balance between consumer protection and innovation. Although companies may be granted temporary relief from certain statutory or regulatory requirements under this program, they will also be subject to enhanced regulatory oversight during the waiver period.”
However, not everyone will be able to play in the sandbox environment, as eligibility criteria limit the number of clients, and a limited time period for the developers is part of the package. Overall, though, it’s another great step forward.
Last year, in response to an issue created by the Tax Cuts and Jobs Act, Vermont passed legislation that offers an onshore affiliated reinsurance alternative to insurance companies affected by the Base Erosion Anti-Abuse Tax (BEAT) on reinsurance ceded to offshore affiliates. The law facilitates the redomestication of overseas affiliated reinsurance companies (ARCs). Once established in Vermont, affiliated reinsurance companies will be able to avoid the BEAT and the federal excise tax applicable to reinsurance premiums and take advantage of the new lower rates applicable to corporations and Vermont’s cap on premium taxes.
Earlier this year, Commissioner of Financial Regulation Mike Pieciak and Secretary of State Jim Condos signed a memorandum of understanding outlining their collaborative efforts to explore emerging blockchain technology and its use in the digital record-keeping practices of the captive insurance industry. They jointly issued a request for information (RFI) to identify vendors that may work with the state to launch a pilot program allowing new captive insurance companies to register with the Secretary of State using blockchain technology. The pilot program will help the state identify areas where the use of blockchain technology in regulatory and other government business may increase data security and reduce costs for residents and those doing business in Vermont. There were more than 20 submissions, which the department is currently reviewing.
The support of the InsurTech sector, new reinsurance models, and the blockchain pilot program are great examples of Vermont’s openness to technology trials and innovations in the state and Vermont’s awareness that the insurance industry as a whole is ripe for innovation.
Article by: Rich Smith, President, VCIA