Top Tips for Hiring a Captive Manager

In the outstretched palm of a businessman is an illuminated lightbulb with icons of business professional resume poses

March 28, 2018 |

In the outstretched palm of a businessman is an illuminated lightbulb with icons of business professional resume poses

Recently, Editor John Foehl shared his thoughts on how to construct a board of directors for a captive insurance company in "5 Top Tips for Building a Board of Directors." Mr. Foehl serves as an incorporator for a captive insurer that is currently in the process of interviewing and hiring a captive manager. We asked Mr. Foehl to share his insights into this process. Given the critical role this service provider plays in any successful captive that is not internally staffed, Mr. Foehl believes new boards should strive to make this process as effective as possible. Below are his top tips for hiring a captive manager.

Where to begin? In some circumstances, the retention of a captive manager may be preordained. This will happen in one of several ways. Frequently, the initial idea of a new captive insurer begins as a discussion among several interested parties who use the same insurance broker. Major brokerage firms will have access to internal captive management resources. Here, the broker may suggest to the interested parties that it makes sense to keep all of the services under a single umbrella, and, therefore, the parties agree to retain the resident captive management subsidiary.

Where a broker/agent does not have the internal capacity, there may be an existing relationship between the broker/agent and an independent captive management firm. The broker/agent may suggest that the firm be retained initially to conduct a captive feasibility study. Often from there the natural progression, assuming the board is comfortable with the initial work product, is to retain the captive manager.

None of the above circumstances is unique, and this is frequently how things occur. However, boards should not hesitate to further explore interviewing for the role of the captive manager, while including either the brokerage subsidiary or the independent captive manager.

What steps should boards that pursue this course of action follow? Many times, the board will already have a domicile in mind for the captive insurer. Most domiciles maintain a listing of approved captive managers that are allowed to operate within their jurisdiction. A simple phone call to the head of the captive insurance division in the domicile of choice will provide the names of these companies. From there, the board can conduct online due diligence to narrow down the list of potential managers to those that they will ultimately send a request for proposal (RFP).

Designing a well thought out RFP when soliciting a captive manager will facilitate the process and ensure a successful partnership. While there is no need to reinvent the wheel, the board should avoid merely copying and pasting information into a preexisting RFP obtained elsewhere. The board should seek to hire a professional firm with which it hopes to build a long-term relationship. As such, the board should put significant effort and thought into the document it sends to potential respondents. The better the board can articulate what it is seeking, the more likely it will get serious responses in return.

Each RFP should contain the following necessary parts.

  • A cover letter—this document should provide sufficient information to allow a reader to quickly determine if he or she wants to respond. While some may argue that a cover letter is unnecessary, it is truly a common courtesy. Setting forth an executive summary of the RFP in the cover letter acknowledges that the recipient's time is valuable. At a minimum, the letter should contain contact information of the party authorized by the prospective captive insurer to speak on behalf of the board of directors, a brief synopsis of why the captive is being formed, the intended lines of business to be written in the prospective captive, a time line for the submission process, and the terms and conditions that will bind the bidders.
  • The RFP—this document should contain the following.
    • A background section setting forth why the captive is being formed and by whom.
    • The scope of services section is the meat of the RFP. Eighty percent of the board's time in developing an RFP should be spent in crafting the scope of services. The more time and effort put into describing exactly what the board would like the captive manager to do, or provide, the better response it should expect.
    • The general terms and conditions section includes language that the board's legal counsel wants spelled out for the RFP. It includes sections on terms of the contract, cancellation provisions, payment and billing information, requirements for confidentiality, ownership of the work product, pricing of additional services not covered under the contract, and billing information.
    • In order to make the process as easy as possible for the board to narrow down its choices, respondents should be instructed to conform to a single response structure section. This section should outline all of the requirements required for the RFP to be considered complete, including an overall length requirement, whether there is an allowance for appendices or attachments, the expected delivery date, and the methodology.
    • An RFP evaluation matrix should be provided to let candidates know how they will be graded and that the board has given thought to how it will select which candidates it invites for an interview. Additionally, an evaluation matrix creates objective criteria that may be beneficial should the process turn contentious. Readers who are interested can request a copy of a potential matrix evaluation form.
  • Responses to questions—no matter how well an RFP is designed, invariably prospective bidders will have questions. Assuming that the board agrees to allow for questions, it will need to address the following: the time frame in which questions will be allowed, the name and contact information for the individual assigned to respond to such questions, and an affirmative statement as to whether the questions and answers will be shared with all potential bidders.

While following this recipe is not a guarantee for success, it can greatly increase a board's chances of finding the right captive manager.

March 28, 2018