Building ‘Team Captive’

TABS Insurance, a special purpose captive domiciled in North Carolina, is a growing captive that is in its third year of operations. It exists to serve the members of its association, The Association of Boarding Schools (TABS), with the product being tuition refund insurance.

The goal is to provide an insurance product that meets the needs of member schools. It seeks to provide an informational platform to help participating schools understand and minimise their risk of attrition, and to help the greater boarding school industry at-large.

I recently presented at the North Carolina Captive Insurance Association’s (NCCIA) Annual Conference on the topic of strategic partnerships between owners, captive managers and service providers. One of the main takeaways from the conference was that the captive insurance industry needs more owners to attend and present at conferences, and to serve on committees and boards of industry associations.

Among captives there appears to be a strong leaning towards passive rather than active ownership. This is a shame, since active ownership allows for a more strategic partnership between the owners, the captive manager and service providers. It requires owners to participate more actively at conferences, on captive boards and within the industry in general.

The second takeaway was that captive managers and service providers are eager to share their knowledge and expertise with others in the industry, regardless of contractual affiliation.

There are many subject matter experts that are looking for ways to help captives achieve their opportunities, help the industry to continue to grow and in return grow within their careers as well.

Captives that are looking to grow do well to form purposeful, strategic partnerships with their service providers, who are experts in their specific area, whether that is as captive managers, reinsurers, actuaries, lawyers or auditors. These partnerships help captives identify new or emerging lines of coverage, assist in the collection and interpretation of claims data and provide for the dissemination of valuable risk mitigation information.

When selecting these service providers with which the captive will partner, an effective approach is to identify (i) the captive’s vision, or where the captive is looking to get to; (ii) its mission, meaning how it is organised in order to be successful in achieving its goals and objectives; (iii) the benchmarks it will use to achieve its mission and vision; and (iv) the strategic objectives, or functional components that will help it achieve its strategic goals.

Once these decisions have been made it is important to select partners that will be aligned with the captive, allowing it to focus on meeting desired operating outcomes that grow the bottom line. Captives that take a strategic management approach to operations can transcend the transactional relationships that make insurance coverage merely a commodity.

There are very good resources available through captive associations, industry experts and even other captives to help with the service provider selection process. A good place to start when evaluating potential partners is with a Request for Proposal (RFP), which enables captive managers and service providers to address the important questions that have been identified to assess potential compatibility.

This is where the captive owner can appraise the characteristics of the service providers and identify the most suitable candidates.

Working together
Relationships begin during the interview and selection process, so it is important that the captive owner and its potential strategic partners develop a good understanding of each other. It is best to ask a lot of questions and to check references.

Once the captive owner selects its strategic partners, it is important to establish the terms for an ongoing working relationship. Open communications among all parties is key for a healthy organisation. This will ensure all parties are managing towards the same strategic goals and objectives, and ensure they all remain aligned with the overall mission and vision.

Treating captive managers and service providers as partners is important. For the best partners, the running of a captive is more than just a transaction relationship. They are experts in their field and bring intellectual capital to the foundation, operations and growth of the captive. Many have extensive experience in multiple areas of insurance, and they have contacts to other experts that are likely to be invaluable over time.

In a healthy organisation captive managers and service providers will share their experiences and discuss ways that business can be conducted differently, to enhance the product or increase opportunities. A strategic team is better than a group of companies working individually, because the combined experience and intellectual capital is magnified.

Captive managers should encourage their service providers to be candid in their views and be open to constructive advice about operational matters. These partners have a great deal of experience in the industry, which will give them insights about the captive that the owners may not have considered. Not all ideas are useful, but it is worth hearing them and contemplating the alternatives.

Don’t be afraid to fail. Allow for the correction of mistakes and move on.
Most decisions relating to a captive are driven by the bottom line of the financial statement. But the strategic use of the information obtained in the operation of a captive can be equally important, helping owners determine additional lines, create measures to reduce risk and determine what factors are driving claims.

The right team will not only help provide insurance coverage, claims processing and financial statements, but can help identify new opportunities for growth or risk reduction for the insured. It can assist the captive in delivering on its overall mission and vision.

Geoff Still is vice president of TABS Insurance. He can be contacted at:  still@tabs.org