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Captive Corporate Governance—The Case for Independent Directors

Corporate Governance Panel FN
February 04, 2016

The topic of corporate governance and, particularly, the use of independent directors was tackled by a panel of captive insurance experts during the workshop "How Do You Spell Insurance?" February 3 at the World Captive Forum in Boca Raton, Florida.

The panel included two captive owners, Casey Halsey of JE Dunn Construction and Mark Marshall of Extra Space Storage; a captive manager, Jeff Kurz of Artex Risk Solutions; and an attorney, William Riley of Paul Frank + Collins P.C. The moderator was Chris Mandel, senior vice president, strategic solutions, at Sedgwick.

No captive domiciles require that captive boards include one or more independent directors. It quickly became evident, however, that the consensus opinion of the panel was that this is a best practice. Since insurance is not their primary business, most captive owners have little or no knowledge of insurance company operations, compliance, accounting, and investment strategy. Adding one or more independent directors to the board is a way to add such expertise to the captive board. Independent directors can act as mentors to the other board members by asking the right questions and challenging the assumptions of service providers. Depending on their past experience, they sometimes can even be a valuable liaison with regulators.

One thing that should be considered when adding directors to the board is the potential liability exposure of the directors. Often, this is an afterthought. It is not uncommon for the parent company's directors and officers liability insurance policy to include an exclusion for liability arising from a captive. The policy should be carefully reviewed and a modification requested if necessary. If insurance is not available for some reason, consideration can be given to implementing an indemnity agreement from the parent company benefiting the directors.

Pictured in photo above, left to right: Jeffrey A. Kurz, managing director, captive insurance consulting, Artex Risk Solutions; William Riley, principal, Paul Frank + Collins P.C.; Casey Halsey, executive vice president and chief risk officer, JE Dunn Construction Company; and Mark Marshall, director risk management, Extra Space Storage.

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