The recent revelations surrounding Nassau University Medical Center’s US $110 million malpractice insurance shortfall have understandably raised questions. A publicly funded hospital discovered a significant gap in its financial obligations, and the public deserves answers about how that happened.

But one question being asked requires a more careful response: Why was NUMC’s insurance company based in the Cayman Islands?

The answer should not be mistaken for the cause.

The Cayman Islands did not create NUMC’s financial problems. Cayman did not manage NUMC’s claims. Cayman did not decide how much money should be reserved for future lawsuits. Cayman did not oversee the hospital’s internal decisions regarding its captive insurance company.

Those responsibilities belonged to NUMC and the professionals it hired.

Captive insurance is not an unusual or questionable arrangement. It is a well-established risk management tool used by hospitals, multinational corporations and public institutions around the world. The concept is straightforward: instead of paying premiums to a traditional insurer and losing control over those funds, an organisation creates its own regulated insurance company to manage its specific risks.

The Cayman Islands became a leading jurisdiction for captives because it developed the expertise, infrastructure and regulatory framework to support this industry. Insurance managers, actuaries, auditors and legal professionals-built decades of experience helping organisations responsibly manage risk.

That success should not be confused with a lack of oversight.

A captive insurance company is still an insurance company. It requires governance, accurate reporting, proper reserves, qualified advisers and responsible decision-making. When any organisation fails in those areas, the problem is not the jurisdiction where the company is registered - it is the people responsible for running it.

If a company headquartered in New York, London or Toronto mismanaged its finances, no one would suggest that the entire city or country’s business environment was responsible. The same standard should apply to Cayman.

In fact, the NUMC situation highlights why strong governance matters in the captive industry. A captive is only as effective as the oversight behind it. Poor claims management, inadequate reserves or weak board supervision can create problems regardless of whether the insurer is located in Cayman, Delaware or any other financial centre.

Cayman should welcome scrutiny. A respected financial jurisdiction must always be willing to examine its systems and ensure that standards remain strong. But scrutiny should be fair. A single institution’s failure should not be used to unfairly characterise an entire industry that supports thousands of businesses and manages billions of dollars in risk.

The lesson from NUMC is not that Cayman’s captive model is flawed. The lesson is that every insurance structure - wherever it is located - requires accountability, transparency and competent management.

NUMC’s financial challenges are a NUMC story. They are not a Cayman story.