Senators review bill to expand captive insurance options, add protected cell captives

The Kansas Senate Committee on Insurance opened a hearing on House Bill 2,334, which would update the state’s Captive Insurance Act by creating a protected cell captive structure, authorizing provisional certificates of authority, lowering certain fees and changing examination frequency.

Eileen (committee reviser) briefed the committee that sections 1–10 of HB 2,334 would enact a Kansas Protected Cell Captive Insurance Company Act and that later sections would amend existing captive statutes. She summarized key provisions: who may form a protected cell captive; corporate forms allowed (mutual, nonprofit or LLC); required application materials; accounting rules (cells’ assets may be combined for investment but must be accounted for separately); and that protected cells would be insulated so a cell’s assets cannot be used to pay another cell’s claims except as expressly provided.

Representative John Tarwater, the bill’s principal proponent, said captive insurance is a form of self‑insurance for businesses and described potential cost‑saving and flexibility benefits. "Captives can try these things and then the major insurance companies can jump in and say, okay, this looks like it works," Tarwater said, describing captives as a vehicle to test emerging coverages such as cyber insurance. He said some Kansas companies already use captives but often domicile them in other states; the bill’s backers said changing Kansas law could bring premium dollars, jobs for actuaries and claims professionals, and tax revenue back to the state.

Tarwater listed notable policy changes in the bill: adding protected cell captives (modeled on Tennessee law), reducing a $10,000 application and renewal fee to a ceiling of $2,500 (the House amended language to make $2,500 a statutory ceiling), authorizing provisional certificates of authority to allow business operations while a captive is being formed, permitting certain types of workers’ compensation and stop‑loss coverage, and changing routine financial examinations from every three years to every five years. The bill would also add a statutory minimum for unimpaired capital and surplus for a protected cell of at least $100,000, Eileen told the committee.

Industry witnesses joined online. Michael Corbett, a former Tennessee regulator and captive adviser who participated remotely, displayed slides explaining how captives sit between self‑insurance and the traditional insurance market and said states with permissive captive rules attract business; he said he had licensed more than 700 captives in Tennessee. Representative Tarwater said his employer, Midwest Trust, set up the first property‑and‑casualty captive in Kansas to test the process and that other Kansas firms use captives domiciled elsewhere.

Committee members asked several technical and policy questions. Senator Rose asked which lines of insurance the bill would cover; Tarwater said lines would be those authorized by the commissioner and described a real example in Kansas limited to property and casualty and general liability (no auto liability) with any expansion subject to a business‑change filing and regulator approval. Senator Clouse asked about scale and typical sizes for captives; Tarwater said captives generally make sense for entities with larger premium volumes (his example: about $1.5 million in annual premium) though protected cell structures can allow smaller participants to pool resources.

Privacy, litigation and consumer‑protection questions were also raised. Senator Warren asked why the committee had primarily proponent testimony and whether larger insurers or the insurance commissioner were supporting the change; Tarwater said the bill was introduced to grow state business and cited written testimony from other supporters. Senator Haley asked about a fiscal note reference to a possible increase in causes of action in district court; an online witness responded that litigation is "extremely rare" in captive arrangements because captives are private arrangements among related businesses and not third‑party public insurers.

Committee members said the topic required more education. Multiple senators suggested additional briefings or meetings with industry experts; the committee planned to circulate contact information for the online witnesses and said staff would consider another hearing because the captive rules are new territory for many members.

The hearing was left open for further technical work; no committee vote was taken during the session.