New Guide Emphasizes Importance of Independent Directors for Captives

While not legally required in every captive domicile, having an independent board of directors can serve several important roles for captive insurance companies, according to a new analysis.

Independent directors "will provide an extra pair of eyes to ensure that all corporate governance and compliance requirements are being met sufficiently and to ask questions above and beyond a compliance-led approach," notes Captive Governance, a new guide produced by Airmic, a British association for those involved in risk and insurance management, in conjunction with Aon PLC.

Such directors, which the Airmic analysis refers to as independent nonexecutive directors (iNEDs), can play several important roles.

For example, iNEDs can assist "in demonstrating to the local regulator that the captive takes its governance requirements and role as a regulated entity seriously," the analysis notes.

Similarly, if iNEDs have expertise in claims management, the report notes that "they may take the initiative to visit the claims-handling department servicing the captive to gain greater insight and provide feedback to the boards."

On deciding who will be an effective iNED, captive parents should, among other things, consider several issues, including the following.

• What is the individual's track record in "behaving with integrity and providing independent and sound advice in other board positions or senior roles in business"?
• Does the individual have insight into the captive parent's business? "If the captive is owned by a hotel chain, for example, an individual experienced in the hospitality industry may be appealing," the analysis notes.
• Does the individual have the time needed to serve as a captive board director? "Boards should consider the prospects current commitments before confirming an appointment," the report said.