The Captive Candidate? -- Howard Dean Criticized for Ties to Insurance Industry

Here's an unexpected pairing: Democratic presidential contender Howard Dean and the insurance industry. The New Republic Online Primary is taking the former Vermont governor to task for his active promotion and expansion of Vermont's status as a center for "captive" insurance companies:

Deanophiles love to spin their candidate's weaknesses into strengths--arrogance is a sign of conviction, tactlessness is straight-talk, and so forth. So I'm curious to see how they'll spin the latest Dean misstep: hypocrisy.

Turns out that while old Howard has been bashing the coziness of the Bush administration with corporate America, Vermont has quietly become the leading state for a dubious tax-break scheme known as 'captive insurance' -- under Dean's direction.

[Decs & Excs does not endorse that characterization of captive insurance as a "dubious tax break scheme." While there are potential tax benefits accompanying a captive arrangement, it can be (and primarily should be) used as a legitimate tool for risk management.]

The New Republic piece is inspired by a detailed article on Dr. Dean and the Vermont captive industry published in today's Boston Globe. An excerpt:

Dean spokesman Jay Carson said there is no contradiction between Dean's complaints about President Bush's corporate tax breaks and the former governor's own efforts to help the captive insurance industry. 'This is a legitimate industry, perfectly legal. It helped the economy here, and Governor Dean is going to make no apologies for that,' Carson said.

As governor, Dean saw his competitor for this business as Bermuda, which hosts nearly three times as many captives as Vermont. 'We consider our competition to be Bermuda or the Cayman Islands,' Dean said in a 2001 article published by the A.M. Best Co. 'We feel pretty good about what we are doing, but it is competitive. Our goal is to overtake Bermuda as the world's largest captive domicile." Carson, the Dean spokesman, said yesterday the governor was referring at the time to his desire to "bring jobs and revenue back to the United States.'

While the captive insurance industry began arriving in Vermont before Dean began his 11-year term as governor, Dean heavily promoted the industry and it grew dramatically under his administration into a key revenue source.

'In terms of benefits to the state, this is one of the crown jewels in the state's tiara,' said Lisa Ventriss, who until last year ran the Vermont Captive Insurance Association and is now president of the Vermont Business Roundtable. 'There is maple syrup and skiing and cheddar cheese and captive insurance. What more could you want from life?'

While the article offers a reasonably clear explanation of how captive insurance works, its focus is more on the perceived disjunction between Dr. Dean's image as a progressive and the corporate clientele most likely to benefit from setting up captive insurance companies. In particular (and duly noted by the New Republic item), the Globe engages in a bit of "guilt by association" between the former governor and a particularly notorious corporate enterprise:

As a presidential candidate, Dean has attacked Bush for giving tax breaks to "Ken Lay and the boys who ran Enron." But Enron apparently was attracted to Vermont because of the benefits offered under Dean's administration. Dean, who became governor in 1991, cut taxes in 1993 by up to 60 percent on the premiums paid by the parent companies to the captives at the same time he was raising the state sales tax and cutting spending. Dean's tax cuts on captives set off Vermont's boom in that industry.

In December 1994, Enron set up a captive insurance company called Gulf Company Ltd., which is managed by USA Risk Group, a company in Montpelier that specializes in managing captive insurance companies. Indicating the closeness of a captive to its parent corporation, Enron's former chief financial officer, Andrew Fastow, was on the Gulf board and made one appearance at USA Risk's Montpelier office, a company official said. (Fastow is no longer on the Gulf board, and Enron has filed for bankruptcy.)

Whether this story will actually make any difference -- a questionable proposition given how easily the public is put to sleep by the mechanics of risk and insurance -- remains to be seen, but Decs & Excs will be watching it unfold with (tax free) interest.