Every year the Federal Insurance Office (FIO), as administrator of the Terrorism Risk Insurance Program, requires participating insurers to respond to a detailed data call.
Among other changes, FIO recently announced its intention to improve the data it collects from captive insurers. A captive is an insurance company that is owned by its policyholder. In many cases, a large corporation sets up a captive to manage retained risks, directly access reinsurance, and capture substantial tax advantages.
Many of these corporations also use captives to directly extract billions of dollars in benefits from government programs such as the Terrorism Risk Insurance Program and Federal Home Loan Bank system. In fact, prior data calls revealed that large corporations are expected to receive up to 95% of Terrorism Risk Insurance Program payouts through their captive insurers.
CBI has offered a number of practical suggestions to FIO to improve its data call templates and instructions. These suggestions, if adopted, would make it more likely captives will provide data that leads to useful insights for Congress and other stakeholders.
More importantly, CBI raises its concern that many captives are not responding to FIO’s mandatory data calls. Only 540 of 3132 U.S. domiciled captives responded to FIO’s last data call. Further, there is no evidence FIO is receiving data from protected cell captives and tribal captives which together may represent several thousand additional missing responses.
FIO relies on data provided by the National Association of Insurance Commissioners (NAIC) to evaluate response rates for traditional insurance companies. However, state insurance regulators are largely prohibited by state law from sharing information about captive insurance companies with FIO (or most anyone else). As a result, FIO admits it does not have a handle on the number of captive insurers participating in this $100 billion program. Without robust data from captive insurers, FIO cannot be confident that the analysis delivered to Congress in its every other year report reflects the actual exposure of this program to the taxpayer.
FIO should be applauded for working to improve its data call templates and instructions for captives. However, the information FIO gets back from those captives electing to respond has little value to Congress and other stakeholders if a significant number of other captives simply ignore FIO’s data calls.