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Guidelines for Success From a Captive Manager
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The single most important priority for a startup, early-stage, or mature RRG is governance, according to Ted Hall, President of CHSI Captive & Insurance Managers, LLC.
He should know. Hall is a CPA, MBA, and widely recognized expert in specialized areas of alternative risk transfer. He has licensed seven RRGs, has two in the pipeline, and is a Director of Physicians Indemnity RRG, Inc., a medical malpractice writer in Florida, Nevada, and Texas. Hall is author of the three-volume Captive Insurance Manual: The Alternative Market and numerous scholarly journal articles. He is a former tax partner of the accounting firm, Ernst & Young.
While every RRG Board bears ultimate responsibility for the success or failure of the company, many Boards cede virtual control to a captive manager. This can spell trouble, Hall points out, especially if the manager is responsible for both underwriting and sales/marketing. “There’s a potential conflict of interest that can lead to relaxing underwriting standards to gain market share,”he warns. “The IBNR (incurred but not reported claims) can take down a small company if strict underwriting standards are not maintained.”
Hall does not expect Board members to be insurance experts. However, based on decades working with RRGs, he found that the most successful have Boards who learn enough about the insurance business to measure the captive manager’s performance independently.
Board Structure Important
In addition to the nuts-and-bolts of licensing and regulatory compliance, Hall works with founders to develop a business plan and create an organizational structure for effective Board governance. He recommends that Boards create committees that oversee underwriting and claims, finance and audit, marketing, legal, and investments. These committees need to be activated as the RRG grows so Boards can make informed judgments on critical issues. “You can’t rely on the captive manager to make decisions for which you as a board member are responsible to the shareholders,” he declares, “but being a hands-on Board member doesn’t mean becoming a micro-manager.” As a captive manager, CHSI works with the state of domicile to meet all licensing requirements and continues as the RRG administrator for regulatory compliance. “We recommend independent, professional underwriting and claims organizations to perform these functions under Board supervision independent of marketing,” he explains.
Source: Risk Retention Reporter
