Around 200 jobs may already be in the pipeline under a new state law that puts corporations in control of their insurance, and even the architect behind the law is surprised by the level of interest from major companies in the state.
Tennessee Commerce and Insurance Commissioner Julie McPeak is the key figure in the captive insurance law that was part of a limited legislative agenda of Gov. Bill Haslam, who is quick to give credit to McPeak on the initiative.
Captive insurance is an approach that allows an existing company to form its own insurance subsidiary, designed especially for that company’s needs, instead of attempting to shop for insurance from the conventional commercial market.
Variations on the basic concept, frequently called simply a “captive,” have evolved. Once a company or association forms a captive, it does not have the authority to compete with others in the marketplace. It serves only its own insurance purpose.
McPeak believed Tennessee was both due for a major update in its law and that its business climate was ripe for the kind of reform she envisioned.
“I felt Tennessee was losing captive insurance to other domiciles because our law was so outdated,” she said.
“Since the law has become effective, I think there are plans for some corporations to start adding staff to existing offices and creating new offices in Tennessee to support the captive industry. We have heard possibly up to 200 jobs, which is thrilling to me.”
Captive insurers need specialized workers such as accountants, attorneys and actuaries. McPeak would not identify a business looking at establishing a captive in the state, but she did say she believed the office would be in Memphis. The state currently has only three captives. Vermont last year added its 900th captive.
Tennessee has had a captive insurance law for decades. In 1978, it became the second state in the nation, behind Colorado, to establish a captive insurance statute. State officials believe Tennessee fell behind the market since then, however, prompting the upgrade.
“It makes it much simpler,” Haslam said. “Commissioner McPeak can explain this better than I can. We’ve had companies like FedEx and some others say, ‘If this were so, we would set up a captive insurance in Tennessee,’ which obviously would create jobs in Tennessee.”
When asked which came first, his interest in captive insurance or the choice of McPeak, Haslam said it was McPeak’s position on the issue.
“She knows a lot about the law and how that might impact companies in Tennessee,” Haslam said. “She came to me with the idea, walked me through it, and I agreed it would make good policy sense.”
Rep. Joe Carr, R-Lascassas, and Sen. Mark Norris, R-Collierville, carried the legislation (HB2007/SB1540), which is lengthy, technical and complex. It passed unanimously in both houses in this year’s legislative session.
“It’s a true jobs bill, because it opens up Tennessee to a very niche market,” Carr said.
“It’s a specialized field in accounting and law. It’s going to attract those high-paying, white-collar jobs to Tennessee to meet the demand this bill is going to create.”
McPeak has experience in the field. She was the insurance commissioner for Kentucky and had come up through that department. In 2000, she drafted the first captive law for Kentucky. When she left office, she moved to Nashville where she practiced law at Burr Forman, and she saw a need for captive insurance in Tennessee. Another key figure was Kevin Doherty, a partner at Burr Forman.
McPeak met Haslam before the Republican gubernatorial primary and talked to him about captive insurance.
“I think he somehow filed that away and kept me in mind through the primary and the general election,” she said.
After his election last November, Haslam called McPeak.
“He said he was intrigued and he wanted to learn more, and I talked with several people in his transition team about it,” she said. “It was something I felt pretty strongly about, because we have such a strong infrastructure in Tennessee.”
She sees the presence of the health care industry, automotive suppliers and other service sectors as businesses that could benefit from captive insurance.
“I don’t know if all of them will be interested in forming a captive, but they are certainly looking into it, and I think they appreciate just having the option,” she said.
A key factor in the structure is to have an effective regulation system in place. The Tennessee Department of Commerce and Insurance, like those in other states, has membership in the National Association of Insurance Commissioners, which has an accreditation program. Those officials come in once every five years and physically go through the department’s files. They also conduct annual and midterm reviews of the financial condition of insurers, both commercial and captive. The basic structure has revenue streams through premiums, and fees go toward regulation.
The updated law adds four types of captives, including branch cell captives, risk retention group captives, special purpose captives and incorporated cell captives.
McPeak said growth must be managed carefully, however.
“We certainly are intending for slow and controlled growth in the industry,” she said. “I don’t think it benefits anyone for us to approve 30 new captives in the first six months. But we are able to accept applications.
“We are currently looking for a captive manager. We have identified some talent within the department we think will be assigned to the captive insurance regulator unit, and we will be adding additional staff there. I’m guessing maybe two additional people at this point in addition to the captive manager.”
McPeak expects there will be three applications “in short order.”
“That’s a pretty large increase immediately from the effect of this bill,” she said.