What makes a captive insurance application get rejected?
Three criteria stop an application, and most problems are solved before it is filed
Travis Wegkamp says outright rejection is not something the division deals with often, because the department talks to prospects before they file and most issues get ironed out then. What does stop an application comes down to three checks: whether the proposed lines of coverage are permissible under Utah's code, whether the people and entities being insured are ones a captive is allowed to insure, and whether the parent and the beneficial owners can actually support the captive financially.
The first thing worth noticing is Wegkamp's framing of the question. He describes rejection as rare, and the reason he gives is procedural rather than flattering: the department has conversations with new prospects before an application is submitted, and the problems get resolved in those conversations rather than in a refusal letter.
That reframes what an applicant should do with this answer. The failure modes below are not gates to be argued past at filing. They are the things to settle with the division before anything is filed.
Key takeaways
Wegkamp says rejection is rare because the department works through problems with prospects before an application is filed.
Permissible coverage is the main check, and he says health, life and personal lines coverages are not allowed in a Utah captive.
The other two checks are whether the insureds are the parent, an affiliate or an approved controlled unaffiliated business, and whether the parent and owners can financially support the captive.
The first criterion is what the captive proposes to write. Wegkamp says the main thing is making sure the lines of coverage are permissible per code, and he names the exclusions directly: health and life coverages and personal lines are not available to a Utah captive.
The second is who is being covered. A captive is licensed to insure its parent and that parent's affiliates. Wegkamp notes one extension, the controlled unaffiliated business, which he says is allowed but takes additional work to set up properly and get approved.
From the conversation
Travis Wegkamp
Director, Captive Insurance Division, Utah Insurance Department
“So really, those are probably the three key criteria that might go into a captive not moving forward.”
Transcript
Read the full transcript 5 turns
HostNow, as a regulator, what does it pass muster? What causes you guys to take a second look at an application or reject an application? That
Travis Wegkamp's an interesting thought. Typically, that's not something we deal with, I would say a lot, because we will have conversations often of new prospects before they actually submit the application and a lot of that stuff will be ironed out. But the main thing is making sure that the lines of coverage are permissible per code. As you know, captives are licensed to ensure the parent entity and their affiliates
Travis Wegkamp. They not allowed to do health, life coverages or personal lines, coverages, things of that nature. So that's really the key thing that we'll look at is to make sure the proposed business plan is acceptable per code. The individuals they're wanting to ensure are allowable per code. That parent or affiliate or in some cases, what we call a cub, a controlled unaffiliated business, that takes some additional
Travis Wegkampworking to get set up properly and approved, but it is allowed. So the types of coverages, the individuals being covered, and then we'll have to take a look at the financials as well and make sure that the company appears to be in a position that it can support a captive. And the beneficial owners are in the position to be the financial sort of backstop, as you might say, in those cases as well
Travis Wegkamp. So really, those are probably the three key criteria that might go into a captive not moving forward. That all makes sense
Citations
Sources
- Captive, Utah Insurance Departmenthttps://insurance.utah.gov/captive
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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