How can you find the best manager for your captive, whether it's a single-parent captive or a group program with hundreds of insureds? You certainly can't find ratings of captive managers in Consumer Reports, or even in a trade publication.

Indeed, while all captive managers we know of competently handle the basics – that is, the bookkeeping aspects – there are significant differences when you extend this service into the world of insurance.

Thus, when evaluating captive managers, use the following criteria:

Successful captive management takes a combination of accounting and insurance skills. A captive manager's staff should include people who are qualified in both areas. The manager should employ professionals with relevant accounting credentials, such as a CPA or Chartered Accountant (the British or Canadian equivalent), and with insurance credentials, such as CPCU, ARM or ARe.

Typically, captive managers recruit entry-level professionals from accounting ranks. These employees should become proficient in insurance. When your account manager understands underwriting and coverage issues, he or she adds value.

You should learn about the manager's history. How long has the captive manager been in business, and how long do employees stay? Are they paid adequately? Excessive staff turnover is a problem because of the lack of continuity and, therefore, knowledge of the account. You, the client, shouldn't have to spend your time and energy retraining new account managers.

At the senior executive level, you should look for captive managers who are experienced in different domiciles. Someone who has dealt with just one domicile won't be able to comment on the benefits of other domiciles. For instance, while Vermont may be a top choice for an owner-insured captive program, it may not be suitable for a more entrepreneurial structure.

Captive managers today need a global perspective. That way, they can offer informed advice about whether it makes the most sense to put your captive in Dublin or Vermont, Bermuda or Hawaii.

Look for creativity, too. The captive manager should have the ability to develop creative approaches for new programs or even restructuring an existing program.

The manager's computer system is important. If the system is inflexible, the manager may have to force-fit your insurance program to meet the demands of the computer system. With a flexible system, the manager can run your program and produce the output in the format you desire.

Mainframe systems are not as flexible and are more expensive than personal computer-bases systems. You should ask for specifics about your manager's computer systems and speak to your own experts. How do they rate your manager's information system?

You should also ask whether your manager's system allows you remote access. Can you be linked to your manager's e-mail system or have Internet access? This can have major benefits by allowing you to transfer month-end information to your manager for processing and then, in turn receive monthly financials electronically.

Any experienced captive manager should have templates for the various insurance and accounting reports it generates. With a template, the manager doesn't have to start from scratch each time. But the template must not lock the manager or you into anything; it's just a starting point. Make sure you get what you want, not what the manager wants to give you.

You'll also want to be sure that your manager's system can handle a program of your size. If your program has few transactions, the manager should have a system than can handle it cost effectively. For instance, we've seen some reports that consisted mostly of blank spaces. They were generated because an inflexible mainframe generated many report categories that weren't applicable.

Conversely, if your program generates thousands of transactions a year, you want to make sure the manager's system is sufficiently powerful to handle that volume.

Does the captive manager offer all the services you need? Are they unbundled, so you can pay for what you need and not be charged for unneeded services?

Captive managers should offer eight distinct services: financial (the basis accounting work), regulatory, underwriting, policy management, claims, reinsurance placement, loss control and cash management.

Some clients, who want to be freed of daily responsibilities, will want the manager to do all eight. Others, who want more involvement, may want the manager to just handle statutorily required bookkeeping.

The ability of the manager to deliver a broad range of services depends on the experience of the staff and its support systems.

And yet, while the captive manager should provide all the services you require, it should not handle items that may involve a conflict of interest.

We advise not using the manager's in-house actuary, if it has one. A staff actuary faces too many potential conflicts of interest. Furthermore, certification by an independent actuary will have more credibility with regulators.

For instance, a staff actuary doing a feasibility study has a vested interest in approving a proposed program. An independent actuary can be completely objective.

Similarly, if there are complex tax questions, you should rely on an experienced tax attorney, not the captive manager.

Investment management should also be handled by outside professionals. Cash management – investing in T-bills and CDs – is a simple matter that the captive manager can probably handle. But, if the program requires someone to actively manage a portfolio, that should be done by a professional money manager.

The captive manager should be familiar with qualified actuaries, tax attorneys and investment managers, and be able to recommend those whose approach is best suited to client needs.

When appointing a captive manager, you are buying a service. Your manager and account executive should be easily accessible and responsive. Can you contact your manager several ways? Do staff promptly respond to voice-mail messages and faxes? Can its key managers be paged or contacted after hours? Does the manager have e-mail?

While you might think that all the above would be a given today, some captive managers still don't have up-to-date communication systems – especially when you go to small, out-of-the-way foreign domiciles.

You should also make sure you are comfortable with the people at the captive manager. Do they listen to you? Captive managers are experts, and like other experts, they sometimes take the position of telling the client what to do – without listening carefully first. If a captive manager won't listen to you, you should take your business elsewhere.

A captive manager should serve as an honest consultant. If something does not make sense or won't work, the manager should say so, even if it loses income as a result. A "yes" man won't serve you well.

Will you have access to the top people once you're a client? Or are they interested in you only during the sales pitch? Even though your primary dealings will be with your account manager, the captive manager's senior executive should be accessible and aware of any changes you've made to your program.

Take a look at the firm's office when you visit. Is it well organized or chaotic? You can often get a sense if the firm is running smoothly.

As representatives of an independent firm, we freely admit our bias for independent captive managers – those that are not a division of a broker or an insurance company. But it can't be denied that non-independent managers give good service. However, clients should be aware of potential conflicts of interest.

Brokers make their money on commissions and tend to use captives as a defensive mechanism. Brokers would probably prefer that you use a fully insured program, which generates more commissions, but realize that if they don't offer a captive, they might lose the account to a competitor.

Additionally, unless the captive manager operates at arm's-length from the broker, you may not get unbiased advice about how your captive can be best utilized. For instance, though your captive manager may support increasing the level of business in the captive, that may conflict with the wishes of his or her superiors at the brokerage house.

An independent manager doesn't have to keep a parent broker or insurer happy. It does not serve two masters; the client remains its sole concern.

The principal here is simple: the fee should reflect the value of the services rendered. If you want what amounts to a bookkeeping service, the price should be low. Fuller services will cost more. And if your reduce the amount of work the captive manager does, you should expect a reduction in fee.

Captive management is a competitive business and fees are usually in line with reality. But not always. You should beware of the 5 percent-fee-increase-a-year strategy. Your manager, like any other company, should be aiming to become more efficient. If your manager proposes an increase, make sure it's supported by increased workload or responsibilities.

Some captive managers offer new clients a rock-bottom price that seems to good to be true. And it is. A firm offering a lowball price will look to increase its fee next year when the client feels locked into the decision.

Also, watch out for broker-controlled managers that offer captive services at severely reduced fees. Though this may look like a good deal for you, you'll pay for it through higher commissions or services fees you pay your broker.

Finally, check references. Al most anyone can talk a good game. But has the captive manager really performed as advertised? The best way to really find out is to seek out client references. Clients can offer a valuable reality check. Ask them specific questions about the manager's performance and you'll gain some valuable insights.