Captive insurance company eyes dropping Hampshire College

Staff Writer
Published: 4/4/2019 11:49:49 PM

AMHERST — As Hampshire College faces a financial crossroads, the school’s crisis has the region’s other four institutions of higher education reconsidering their entwined interests with Hampshire.

Part of that process was recently revealed in a Hampshire trustee’s resignation letter obtained by the Gazette.

In the message, trustee Mingda Zhao said he was accused of breaching confidentiality after contacting the presidents of Amherst, Mount Holyoke and Smith colleges to verify whether those colleges were considering dropping Hampshire from their joint insurance company. Zhao said that Hampshire President Miriam “Mim” Nelson told trustees at her college that being dropped from the insurance company would create “an impossible financial burden upon Hampshire.”

The region’s four private colleges receive their commercial property and casualty insurance through a “captive insurance company” that they created together, called Collegiate Catalyst Fund.

The company’s vice president, Stacie Kroll — who is also director of compliance and risk management for Five Colleges Inc. — said Wednesday that dropping Hampshire from the company was just one of several actions being considered.

“No options are more likely than any other,” she said. “One of the options is the possibility that Hampshire may not be a member of the captive, but it’s one of several.”

It is unclear what the financial impact would be on Hampshire were the college to no longer be a member of the company. Nelson declined to discuss the topic when asked Tuesday. 

“On behalf of the captive, it’s not clear yet what burden that might have on Hampshire, if any,” Kroll said. “There’s a lot of moving parts here.”

Hampshire spokesman John Courtmanche said in a statement that Hampshire will work with its partner institutions to evaluate how the college’s plans might affect the captive. 

“Hampshire appreciates the work and collaboration among our partners in conducting this important evaluation,” Courtmanche wrote.

Kroll explained that the captive isn’t like traditional insurance. It’s a way for the colleges to have a structure to finance their own risk, she said. As part of the company, Hampshire pays a premium every year, and then claims are paid out of that money. The captive’s members are able to share expenses in addition to claims management expertise, Kroll said.

Were Hampshire to leave the captive, it wouldn’t create any additional liability for the college, Kroll said. It would move that money paid out for claims from the company to the college’s operating budget, she added.

“It’s not clear how that would look at this point in time because we are still very much in the exploration phase of all of this,” Kroll said. “But it’s not this imminent threat that wouldn’t have already been there.”

There are other insurance companies that Hampshire could go to for that insurance, including those that have specific programs for colleges and universities. That’s according to Peter Kochenburger, the executive director of the Insurance Law Center at the Unniversity of Connecticut School of Law.

“But is Hampshire going to have to pay a lot more?” Kochenburger asked. “I don’t know.”

Kochenburger said the advantage of a captive is that any money made is kept within the pool instead of benefiting an outside insurance company. That tends to mean that captives are a cheaper way to get that insurance.

As for what Hampshire’s departure would mean for the other colleges, Kochenburger said he would need more information to say. Hampshire leaving would reduce the amount of money in the captive’s pool, but would also eliminate one source of risk. “Whether that’s a net gain or loss for the pool, it’s hard to know,” he said.

Exploring all of those possibilities, Kroll said, was an in evitability given Hampshire’s situation.

“Re ally, this process is j ust our fiduciary responsibility as the captive to evaluate options,” she said. “Failure to do so would be pretty irresponsible for us as a board, because we are a company … this is just good fiscal responsibility.”

This story has been updated to include a statement from Hampshire College spokesman John Courtmanche.

Dusty Christensen can be reached at dchristensen@gazettenet.com.


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