Are You Ready To Serve on a Captive Insurance Company Board?

According to a Harvard Business Review article titled, "Are You Ready to Serve on a Board?" by Anthony Hesketh, Jo Sellwodd-Taylor, and Sharon Mullen, achieving "board readiness" has become more challenging, requiring directors to navigate complex business landscapes, exhibit technical expertise, and contribute to sustainable long-term performance.  

Simultaneously, several trends are creating opportunities for positions on boards of directors, including those of captive insurance companies. 

First, the natural aging out of the baby boomer generation is significant. Per Census.gov and Pew Research Center, approximately 45 percent of baby boomers aged 65 or older are retired. Additionally, about 10,000 baby boomers continue to reach retirement age daily. This trend is expected to continue, with all baby boomers reaching at least age 65 by 2030, marking a significant shift in the workforce and retirement landscape.​ Meanwhile, many corporate governance policies include mandatory retirement ages for directors, requiring older baby boomers to vacate their positions. 

Second, there is a growing recognition of the need for greater diversity within boards. California, for instance, enacted several laws to increase board diversity, notably SB 826 in 2018, which required publicly held corporations to include a minimum number of female directors. This law led to a significant rise in female representation on boards, from 12.9 percent in 2016 to 23.2 percent in 2020. In 2020, California further expanded diversity efforts with AB 979, mandating the inclusion of directors from underrepresented communities, including racial minorities and LGBTQ+ individuals. Despite legal challenges that ultimately struck down both laws as unconstitutional, these initiatives have raised awareness and driven progress toward greater inclusion in corporate governance, impacting board diversity efforts beyond California.  

Recent research continues to support the positive impact of diversity on board performance. An article from MIT Sloan Management Review in 2023 emphasizes that diverse boards engage in better governance practices and foster inclusive discussions, which enhances overall board effectiveness. The article suggests that diversity in gender, race, and ethnicity on boards can lead to more robust conversations and better oversight, thereby improving organizational performance. 

Additionally, a 2023 McKinsey report reaffirms the financial benefits of board diversity. Companies in the top quartile for gender diversity on their boards are 27 percent more likely to outperform financially, while those with high ethnic diversity are 13 percent more likely to outperform. The report highlights that diverse boards contribute not only to financial success but also to broader social and environmental impacts. 

Thus, opportunities for women and other underrepresented groups to seek board seats are on the rise. 

According to the previously mentioned Harvard Business Review article, interviews with over 50 board members revealed that successful directors develop "boardroom capital" through five key types of intelligence, which include the following. 

• Financial intelligence. The ability to understand and interpret financial statements, assess capital structures, and evaluate cash flows to fulfill fiduciary duties and provide informed oversight. 
• Strategic intelligence. The capability to translate financial data into strategic insights, understand key trends, and ensure that strategic plans align with financial projections and sustainable value creation, including environmental, social, and governance considerations. 
• Relational intelligence. The skill to build effective working relationships with other directors, executives, and stakeholders, facilitating clear communication and collaboration in high-pressure boardroom environments. 
• Role-specific intelligence. Clarity on one's contribution to board discussions, asking pertinent questions, and providing valuable insights based on their unique perspective and expertise while knowing when to readdress critical issues. 
• Cultural intelligence. The ability to foster a boardroom environment that encourages transparency, trust, and openness, allowing executives to seek guidance and admit challenges without fear, thus enhancing the overall effectiveness of the board. 

To further enhance your candidacy for a captive insurance company board of directors, you may also want to consider the following strategies. 

Know Yourself 

Why do you want to serve on a captive board of directors? If your primary motivator is to enhance your résumé, you might want to reconsider. Serving on any board entails significant fiduciary responsibilities, obligations, and potential penalties for failing these duties. For a captive board of directors, the state of domicile's insurance department holds significant power to enforce these responsibilities. 

Be Prepared 

If you are motivated by the intellectual challenge, consider if you are prepared to work. Although being a board member is often considered a part-time job, the time commitment can be substantial. You will need to thoroughly read all materials prepared for board meetings in advance. Board members and management can easily tell who has come prepared and who has only skimmed the materials. 

Reading the materials early allows you to think through the content and its strategic implications. As a captive board member, your role is to help the management team consider all critical aspects of the bigger picture. This requires thoughtful consideration, which cannot be achieved if you only read the materials at the last minute. 

Be Well-Read 

In his book, Call Sign Chaos: Learning to Lead, General James Mattis states, "If you are not reading hundreds of books and articles, learning from others who went before you, you are functionally illiterate—you can't coach, and you can't lead."

This is especially true for captive board members. You should understand key trends and external realities to evaluate the strategies presented by management effectively. Reading deeply and broadly, beyond just skimming news highlights, is essential. This requires dedicated time outside of board meetings. 

While none of these attributes alone will guarantee you a captive board position, they will make you a more viable and attractive candidate.