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Whether you’re thinking
about forming a captive insurer, or you’re in the process of assessing
the quality of the services provided to an existing captive, we
know that quantifying the "value added" of the companies which
support your captive underwriting effort can be difficult and
can be fraught with real problems.
We’ve assembled a
checklist of what you should expect from your service providers
and which should provide you with a management tool you can use
to gauge what services you need, from whom and what you should
pay for them. As you consider the captive feasibility process,
or as you consider the captive services you now purchase, we hope
you find this checklist useful.
The Captive Manager
- The most important service provider:
A reference check is a "must".
- Determine the frequency of the
financial reports you will need and the cost difference between
monthly and quarterly financial statements.
- Determine appropriate levels
of signing authorities on company accounts (particularly important
for off-shore captives).
- Be certain that you can be comfortable
with the account team, including anyone designated to serve
as director or alternate director.
Estimated
Annual Fees: $28,000 to $55,000+ (Price will be affected
by domicile, frequency of financial reports; additional required
services beyond the scope of the agreement; complexity of
the underwriting program.
The Local Law Firm
- Determine the relationship the
firm has with local regulators.
- Should have an existing, well-developed
captive practice.
- Be certain that you can be comfortable
with the person designated as a director or alternate.
- Be clear about where the start-up
or implementation phase ends — and annual corporate secretarial
services begin.
Estimated
Annual Fees: $3,500 to $10,000+ (Will be determined by
the services rendered. Start up costs are frequently in the
$8,000 to $15,000 range).
The Auditor
- Assess whether a GAAP statement
is really needed.
- Discuss the process with local
partner first before retaining the local branch.
Estimated
Annual Fees: $9,000 to $15,000.
The Investment Manager
- Discuss any domicile-specific
investment requirements/regulations.
- Consider the need to "marry"
the investment guidelines/asset allocations to the incurred
loss projections in any actuarial pro-formas.
Estimated
Annual Fees: Will vary widely; fees usually quoted in
"basis points" as a percentage of portfolio holdings.
The Actuary
- Should have domicile-specific
experience in all major domiciles.
- Actuarial pro-formas should
be updated annually on a 5-year, rolling forward basis.
Estimated
Annual Fees: $8,000 to $20,000+ (Will depend upon frequency
of updates to pro-formas and loss reserve certifications.
The Consultant
- Check references: A high level
of captive experience essential.
- Should be well known to regulators,
managers and other support staff in all major domiciles.
- Should be independent: No insurance
or reinsurance placements should be undertaken.
Estimated
Annual Fees: $15,000 to $35,000
The Broker
- Should have experience in "reconstructing"
insurance portfolios using captives
- Compensation should be fee-based
not commission.
- Should be prepared to assist
in the claims process as required.
Estimated
Annual Fees: (Will vary widely, depending upon the amount
of work/number of placements.)
In Summation
- Your captive’s results will
only be as good as the service providers you choose.
- Checking references is vital.
- Not all domiciles are created
equal: your providers should have experience in all major domiciles.
The Authors:
Susan Hughes is Vice President
of Aon Healthcare Alliance; Charles Buikema is Assistant Vice
President, Risk Management at the Inova Health System Foundation;
Michael Maglaras is Principal of Michael Maglaras & Company
in Stamford, Connecticut. Their e-mail addresses are:
Susan Hughes: susan_hughes@ars.aon.com
Charles Buikema: charles.buikema@inova.com
Michael Maglaras: maglaras@aol.com
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