Communication key in captive oversight: Panel

BURLINGTON, Vt. — Strong communication among captive insurers’ boards, captive managers and other service providers is critical to ensure effective oversight and governance of captives, a panel of experts said Monday.

Captive managers are like general contractors, said Jonathan Habart, Nashville, Tennessee-based senior vice president at Davies Captive Management.

“Some of us do carpentry, some of us will do the framing, some of us will do the roofing, some of us will just make calls and have somebody else do it,” he said during a session at the 40th annual conference of the Vermont Captive Insurance Association.

The responsibilities may vary client to client depending on what they need, but clear communication is essential, Mr. Habart said.

Captive managers should stay engaged and know who the main stakeholders are, including who the owner is, who handles the claims and where the risk lies, he said.

“Provide advice to the board, provide advice to the owner. Be engaged with and talk to them. Keep an eye on and do certain metrics to make sure the financials are turning out the way they’re supposed to,” he said.

A captive is run by its board, which has responsibility for it, said Russell Young, Burlington-based attorney at law firm Primmer Piper Eggleston & Cramer.

The board, or subscribers’ advisory committee, sometimes called the board of managers, is “charged with exercising the corporate powers of the entity which means they make, technically, every decision,” Mr. Young said.

“So you can never blame the captive manager, because you hired him,” he said.

Boards should provide strong oversight of the captive’s service providers, he said. “Exercising diligence over service providers is really how the board stays in control of its captive,” he said.

Housing Partnership Insurance Exchange has a subscribers’ advisory committee that is essentially its board, said Boston-based Vice President Brendan Dolan. HPIEx is a Vermont-domiciled group captive for nonprofit affordable housing organizations.

The committee is made up of 12 people from the captive’s membership, he said. “We select them based upon geography across the country and size of the organization. We don’t want the governance of the company, the board being decided just by the larger members,” he said.

The group meets virtually throughout the year and has one in-person annual meeting, he said.

“Each member organization has one equal vote,” but anyone who works on HPIEx “can’t make decisions without the approval of the subscribers’ advisory committee,” he said.

The level of board involvement varies based on the size and complexity of the captive, said Dennis Silvia, Chagrin Falls, Ohio-based managing member at Custom Captive Solutions, a captive insurance consulting firm.

Larger, more sophisticated captives require more board involvement, while smaller captives may rely more on the captive manager, said Mr. Silvia, who moderated the session.