As Ohio joins 30 other states in approving the formation and management of captive insurance companies, experts are advising middle market business owners to tread carefully.
New legislation was signed into law last week by Ohio Governor, John Kasich allowing businesses in the state to form captive insurance companies to provide for their own commercial insurance needs.
According to Ohio’s Lt. Governor and Director of the state’s department of insurance Mary Taylor, House Bill 117 will strengthen Ohio's insurance market.
"These new tools will offer Ohio businesses new opportunities while also ensuring the Department has the proper and appropriate oversight in place.
They allow for the formation of captives to meet the commercial insurance needs of businesses such as commercial auto liability, workers' compensation and medical malpractice. The legislation does not permit captives to be used to insure personal lines of insurance.
The original intent for this legislation wasn’t for us to create or develop a new captive industry here in Ohio, but rather give another tool to Ohio businesses that are looking to provide insurance for their commercial needs.”
Captive Manager Must Reside in Ohio
According to captive experts, the drawback is that Ohio requires the captive manager to reside in the state and directors’ meetings be held in the state at least once, annually.
“This is unnecessarily burdensome and adds another layer of regulation that does not in any way help middle market business owners and managers,” said Stewart Feldman, CEO and General Counsel for Houston-based Capstone Associated Services, Ltd.
“While we applaud Ohio for making this long overdue move towards captives, we believe the residency requirement for captive managers is unnecessary. The emphasis should have been on making sure that only established and experienced captive managers are approved to run these companies without regard to state of residence,” Feldman added.
Since 1998, Capstone Associated has formed over CAPTIVE_FORMATIONS captives in Anguilla, Delaware and other domiciles for middle market businesses.
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