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Captive Insurance Independent Directors May Utilize Generative Thinking

Feedback Meeting
June 22, 2016

Two articles this past week caused us to reflect on why independent directors may also enhance a captive insurance company board's ability to utilize generative thinking about the future.

Below is a brief refresher for those who have not read our articles on generative thinking ("Reinsurance Markets, Captives, and Generative Thinking," September 25, 2014; "Does Your Captive Board Spend Most of Its Time Reviewing the Past? Should It?" September 29, 2014; and "Captive Insurance Conferences: Governance as Leadership = Generative Thinking," September 18, 2015).

Generative thinking entails the board's ability to practice visionary leadership. In this role the board is responsible for the following.

  • Determining the key questions that need to be asked

  • Framing the key problems that will need to be addressed

  • Reaching an understanding of various future scenarios and options for operating in each

Part of the issues many boards struggle with in trying to adopt generative thinking is the similarity in their mental models. Because many, if not most, of the directors on a captive board are from the same industry, their views tend to be fairly consistent. An independent director, especially one drawn from outside the industry, can bring a different perspective to the table.

The following news stories from last week help illustrate this point.

The first is an article from the Wall Street Journal, June 16, 2016, titled "Public Radio's Existential Crisis," by Ellen Gamerman. Ms. Gamerman recounts the fact that three of the most popular hosts on National Public Radio (NPR) are either in their 70s or have passed on. This is similar to the captive industry, where many of the first-generation leaders are now retired or will do so shortly.

According to Ms. Gamerman in the Wall Street Journal article referenced above,

Public radio is facing an existential crisis. Some of the biggest radio stars of the generation are exiting the scene while public-radio executives attempt to stem the loss of younger listeners on traditional radio. At the same time, the business model of NPR—the institution at the center of the public-radio universe—is under threat: It relies primarily on funding from hundreds of local radio stations, but it faces rising competition from small and nimble podcasting companies using aggressive commercial strategies to create Netflix-style on-demand content.

She goes on to discuss the tensions building up between the old guard and the new guard on the direction NPR should be taking. Reading between the lines, one might wonder if the NPR board did not foresee these changes and is now struggling to adapt.

So how does this relate to the captive insurance community? The second article comes from the Daily Fintech June 16, 2016, InsurTech blog by Bernard Lunn and is titled "Small Business Also Needs Insurance and These 4 #Insurtech Aim to Help."

The article discusses four small insurance start-ups directed at the small-business community. These are the same type of competitors that NPR was facing—small and nimble companies using aggressive commercial strategies. Maybe not all of these newcomers will survive, but it only takes one successful enterprise to upend an entire market.

A good independent director can help captive boards start to think about these issues and craft strategies to be ready for the disruption, which will occur. What is your board doing?

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