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Vermont Expands Niche Insurance Regulation

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VPR/Bob Kinzel
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Commissioner of the Department Of Financial Regulation Susan Donegan and Gov. Peter Shumlin at the signing of legislation that will regulate legacy insurance transactions.

Vermont leads the nation in registering and regulating captive insurance companies. The firms are registered in Vermont, but they are based elsewhere.

Officials say they produce jobs because of the in-state financial services they require. They also generate tax revenue.

A bill signed into law Wednesday by Gov. Peter Shumlin is designed to attract a new kind of niche business known as legacy insurance companies. They will operate in a similar way and, the state hopes, produce similar results.

"Vermont has incredibly robust financial regulations predominantly because of the captive industry. Without the credibility and the financial know how and the expertise, this probably wouldn't be as secure and safe." - Anna Petropoulos, consultant to new legacy insurance industry.

Legacy companies assume inactive or ‘closed’ commercial policies held by other insurance companies. Those policies often stay in effect for many years and require the companies to maintain reserve funds to cover future claims.

“They can get rid of those older policies and it frees up the reserves that have been in the piggy bank for all those years,” says Susan Donegan, the commissioner of the Department Of Financial Regulation.

Donegan says the legacy insurance companies deal only in commercial policies not consumer products such as  auto or life insurance.

Legacy companies are paid by the insurance companies to take on the closed policies.

The legacy firms profit through investment of the money they receives.

State oversight is designed to assure that the companies maintain the necessary reserves and are run properly. The state receives up to 1 percent of the transferred liabilities. 

Legacy insurance companies are used overseas, but Vermont is the first state in the nation to create the mechanism for them to transfer blocks of commercial policies.

The idea was first presented to the state three years ago by Anna Petropoulos, founder of a Brattleboro-based firm called Apetrop USA.

“Vermont has incredibly robust financial regulations predominantly because of the captive industry.  Without the credibility and the financial know how and the expertise, this probably wouldn’t be as secure and safe,” says Petropoulos.

Petropoulos’ company consults businesses that deal in legacy polices.

State officials say they can’t estimate at this point how much revenue the new regulations will generate.

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