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Captive Insurance Company Board Director: Prepare To Recruit

Board of Directors
June 15, 2016

If your captive domiciliary regulator has not encouraged your captive to have a professional independent director knowledgeable about captive operations and finance, it will probably be doing so in the future. This article discusses a potential plan of action for those captives interested in recruiting an independent director.

First, the current board and management need to agree on the need to recruit an external independent director. While independent directors are the norm for public corporations, they are still somewhat of a rarity within the captive community. And, to be clear, an independent director should be someone who is not your corporate counsel, captive manager, representative, or employee of any of your other service providers.  

Next, the board should consider the culture of the captive. We have addressed culture (attitudes, beliefs, and behaviors) issues in a previous article. However, the board needs to consider whether the outside director is being retained to coexist within the current culture or because there is a need to change the existing culture. These are two very different objectives, and finding a suitable candidate will be dependent on the answer to this question. Therefore, the board needs to undertake an honest appraisal of its culture to determine the answer. 

Ideally, this assessment should include an objective look at the board’s ability to do the following.

  • Think strategically

  • Act with integrity

  • Set goals and achieve results

  • Innovate

  • Collaborate

From there, the board can create an action plan to begin its search. Outlined below is an example of the steps the board should consider.

Steps that will help a captive board prepare for its recruitment are as follows.

1. Prepare a list of potential candidates for the professional independent director.
2. The captive board, with the assistance of its chief executive officer (CEO) or captive manager, should prepare a written description of the responsibilities and preferred qualifications for your independent director position.
     a. Will the independent director be responsible for chairing the audit committee?
     b. What role will the independent director have with respect to leading an evaluation of the performance of the board?
     c. What role will the independent director have in the evaluation of the captive CEO, captive manager, or other service providers?
     d. Identify the preferred strengths and experience your captive board is seeking in the independent director position.
3. Have a written governance policy.
4. Compile descriptions of the responsibilities of any standing committees.
5. Obtain a copy of the captive ethics policy.
6. List current board members and include brief descriptions of their backgrounds.
7. Provide a copy of the most recent captive financial regulatory filing, audit, and regulatory examination.
8. Prepare a copy of the current agreement with captive CEO or captive manager.
9. Make available a copy of the captive policy manual (underwriting, claims, risk management, human resources, etc.).
10. Prepare a copy of the directors and officers liability policy and declarations page.
11. Be ready to share with the prospective independent director the retainer, per diem, and travel reimbursement policy for the position as well as that of any other directors receiving compensation.

Finally, the board needs to interview prospective candidates with the same diligence it would use to retain any of its other professional service providers.

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