Pub. 8 2018-2019 Issue 2

22 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S A s financial institutions continue their focus on managing risk across their organizations, many have implemented captive insurance companies as a key component in iden- tifying and funding for those risks that are not currently covered through their commercial insurance program. A captive allows a bank to expand its coverage over and above its commercial policies and improve its overall risk pro- file. The captive structure augments the commercial policies, allowing a bank to self-insure deductibles, increase coverage levels on existing policies (excess layers), fill the gaps (exclusions and sub-limits) in coverage, and identify other risks to insure where commercial insurance is not available to the bank. Typical coverages in a bank captive include property, pollution, crime, work- place violence, cyber, reputation, D&O, and employment practices. Again, banks keep their commercial insurance policies in place but use the captive to augment their coverage. Beyond this, many banks face unique risks, so each program is cus- tom tailored to meet a bank’s particular risk profile. Unique coverages that can be added to a bank’s captive (whether augmenting an existing commercial policy or serving as a primary coverage) include accounts receivable fraud, reps and warranties coverage for M&A activity, vendor single interest for auto loans and/or equipment financing, and crop/agriculture lending indemnification for catastrophic perils such as drought or infestation. For larger banks that self-insure their employee benefits/health insurance, the captive also offers an opportunity to insure a layer of risk below where their stop loss coverage attaches. In addition to the benefits received from enhancing the bank’s risk man- agement process and providing options and f lexibility when evaluating the bank’s commercial insurance program, a bank also has an opportunity to retain underwriting profit from year to year depending on their claims experience. Not all banks are ideal candidates for the program. Financial institutions must have a holding company and our program focuses on institutions with $1 billion to $15 billion in total assets. Troy Dumlao, Senior Vice President at CoBiz Bank, notes “With our captive in place, we havemitigated a portion of risk inher- ent in traditional commercial insurance programs in a manner that can also enhance the Bank's earnings. KeyState handles the management of our captive and their team has demonstrated the knowledge, attention to detail and high level of cooperation that CoBiz values when selecting a partner.” KeyState’s Bank Captive Program is the largest bank captive program in the country and has seen strong growth over the past five years. The program began inDecember of 2012with 6 banks. Over 75 banks joined the program since inception. KeyState introduces the Bank Captive Program to banks by partnering with state banking associations through- out the country. Twenty-seven (27) state banking associations, including the Colo- rado Bankers Association, have endorsed KeyState’s Bank Captive program. n For more information on KeyState’s Bank Captive Program please contact Hillary Frei or Josh Miller at 702.598.3738. More Banks Turn To Captives To Enhance Enterprise Risk Management