13 December 2023Analysis

Independent thought on captive boards: survey results revealed

Captive International reveals the full data from the survey it carried out with ECIROA earlier this year on the role of independent non-executive directors on captive boards.

Captive boards need to make sure that they get the most out of their independent non-executive directors (INEDs), according to an exclusive survey carried out by Captive International and the European Captive Insurance and Reinsurance Owners’ Association (ECIROA).

According to our poll, which was unveiled by ECIROA at a presentation at the European Captive Forum in Luxembourg in November 2023, most captive owners (71 percent of respondents) believe that they are getting unbiased advice from their INEDs and that the captive insurance market as a whole is highly professionalised and confident in the advice that they receive.

“While INED penetration on boards is high, their skills are not always fully in use.”

However, the poll also showed that while INED penetration on boards is high, their skills are not always fully in use, with a slight majority of respondents (53 percent) saying that INEDs do not sit on any board committees, while 47 percent said that they did.

In addition, most INEDs were invited to join a board for regulatory or compliance reasons.

Looking at the makeup of the respondents 69 percent of them were captive owners or former captive owners, 11 percent were captive managers or captive brokers/former captive managers, 8 percent were risk managers or former risk managers and the remaining 12 percent were “other”.

When respondents were asked how INEDs are selected for their captive boards, there was a wide range of responses, with respondents allowed to pick more than one answer. According to the responses 29 percent said captive manager recommendation, 21 percent said recommendation by another service provider, 25 percent said group contact, 29 percent said own experience and expertise, 25 percent said reputation of expert and 4 percent said recruitment agency. No-one chose the options for “Recommendation of regulator” or for “Social media”, while another 32 percent chose the “Other” option.

We also asked respondents why do they have INEDs. Respondents could select more than one answer and according to the results 25 percent said regulatory requirements, 14 percent said it was group policy, 50 percent said it was best governance practice, 11 percent said on the recommendation of a captive manager, 39.29 percent said substance or own experienced and expertise, 39 percent said neutral advice without conflict of interest and 25 percent gave other answers.

Asked if they believed that they received advice without conflicts of interest from their service providers 71 percent of respondents said yes, with just 9 percent saying no. Another 20 percent said other.

And asked if they believed that they received advice without conflicts of interest from their board/committee members who are not part of the parent group 67 percent said yes, 6 percent said no; the remaining 27 percent gave another answer.

Meetings and assessments

The question ‘How often are board meetings held in the presence of an INED?’ brought a wide range of answers as well. Seven percent said once a year, 24 percent said twice a year, 24 percent said three times a year, 28 percent said four times a year and 17 percent said more than four times a year.

The question ‘How often do you assess the performance/contribution of the INED’ brought a mix of answers that highlighted the fact that INED assessment procedures could be improved upon. Ten percent said “Never”, 13 percent said that it was too soon to answer, 7 percent said every three years, 40 percent said every year, 20 percent said that it was a continuous assessment and 10 percent provided another answer.

On what form this assessment took, 38 percent said an informal anecdotal evaluation, 23 percent said a chat with the chair of the board, 19 percent said a self-assessment form, 31 percent said a documented assessment by chair and other board members, none said external consultation appointed and 15 percent said “other”. 

These particular results hint at a more informal approach to such assessment than might be carried out elsewhere in an insurance company or other organisation, where more formal procedures tend to be in place, along with documentation.

Turning to how regularly respondents reviewed the tenure of their INED 19 percent said never, 19 percent said they had no policy in place, 36 percent said every three years and 26 percent said annually.

On the question of how much do you pay your INED annually 12 percent said less than $3,000; 4 percent said between $3,001 and $5,000; 20 percent said between $5,001 and $10,000; 48 percent said between $10,001 and $20,000; and 16 percent said more than $20,001.

Asked if they would hire an INED if there was a specific certification for captive INEDs, 77 percent said they would, and 23 percent said that they would not.

The survey asked whether if there were a specific questionnaire designed to hire captive INEDs would you consider it? The answers were mixed, with 65 percent saying they would consider using such a questionnaire to select an INED. However, 35 percent said they would ignore such a questionnaire.

The final question in the survey asked if an INED were to be mandatory in your company or captive to what extent would you consider the following answers. Respondents were allowed to select more than one answer: 53 percent said that they would hire with diversity in mind, 19 percent said they would hire with the goal of ESG skills, 58 percent said they would hire with the goal of technical skills, 11 percent said they would hire with the goal of investment skills, 64 percent so that they would hire with the goal of comprehensive complex competency. Another 14 percent selected the other option.