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The virtues of
independence
John Borch outlines his definition of an independent captive management company and argues that high-quality client service and attention to detail is the key advantage of a non-broker-owned manager.
April 2008
How would you best define an independent captive manager?
The actual definition of an independent captive manager can vary. The most commonly held assumption is that there are independent captive managers on the one hand and broker-owned ones on the other, when in fact the argument can be more complex.
For instance, there are some companies that are not owned by a broker but that are so large that in a captive programme, in addition to a captive manager, the company may own other insurance or captive-related companies. They may own a fronting carrier, for example, or a reinsurance carrier, or another carrier that is utilised outside the captive business, or they could even own a premium finance company. It’s not simply a question of just being broker-owned, but rather a question of how many other companies a captive manager is affiliated with that it can utilise for the provision of services to its clients, and whether they are doing so in the best interests of the captive.
What services should an independent captive manager provide?
We offer captive management services, full-stop. We can offer standalone or turnkey services, but we don’t own nor are we affiliated with any of the other service providers we could bring to the table. We don’t own an actuarial firm for example—in fact, we don’t even have an actuary on staff. We offer pre-feasibility studies, but for the actual feasibility study submitted with an application or the annual reserve opinion requirement, or indeed any other services outside captive management, we recommend other companies to perform those services.
Again, we can offer turnkey services if a client asks us to manage the captive, and hire and pay all of the service providers, but really the process is the same.
This is our 25th year of offering captive management services, so we have established relationships with several experienced and qualified service providers in all facets of captive insurance. Essentially, we offer a captive management team. I’ve considered hiring an actuary on staff to provide feasibility studies and to grow that segment of the business, but to be perfectly honest, with any of those considerations, eventually the questions will be: Why are you offering your own actuary to provide these services? Is there a conflict of interest? Is there full transparency? We feel here that it’s best to concentrate on what we do best and to hire out those firms with which we have good relationships. We can work with any number of brokers both in the US and abroad.
What do you offer that is better than a broker-owned captive manager?
What we as an independent captive manager provide to our customers is attention to detail. We are not so small that we don’t have the necessary experience: our senior client managers have an average time in the industry of 12 years. So we have the experience, but at the same time, we are small enough that we can still pay full attention to the detail and go the extra mile to offer extra services, which is a potential issue with the broker-owned captive management teams that may have far more clients assigned to one manager. Also, we do not answer to a corporate office with our earnings per share for the last quarter, or what our profit margin is. Certainly, we are concerned about issues like that, but through being independent, we have the flexibility to go the extra mile and pay more attention to the client.
Is there a maximum size for an independent captive manager?
We’re trying to grow as large as we can, and as we have grown in the last couple of years, we have had to put in place certain review processes that mean that in two or three years, if we are double the size we are now, we will not lose that high level of attention to detail. We will continue to hire staff and put into place the proper management oversight and peer review processes, so that attention to detail will not be lost. Without regular review processes in place, there is a danger of losing the qualities that constitute the additional value of an independent captive manager. Also, I think that some other independent captive managers might lose their way and grow very large, and subsequently lose their independence, as they start buying other companies and offering other services. I don’t see us going there. We’ll get as large as we can without sacrificing any of the attention to detail and high level of service to the client.
Can you provide any guidance as to fee structure?
Fee structure is all very competitive. We strive to be as fair as possible. We try to estimate how many hours of work it will take and, when we make a quote, we provide the client with a breakdown of all the duties required, all the services, how many hours we think it will take and what we feel is a fair price for that.
Do I always get what I feel is fair? Sometimes not, and I think it is now so competitive out there that a lot of these other captive management firms are bidding way below what a fair and reasonable price is. In a sense they are buying the client—low balling—so they can get the client and, then over the course of the next two or three years, the client will see those prices increase.
I certainly lose many bids to such practices. Do those captive managers provide the best service in those situations? That’s something that the client will have to decide. I’m still submitting quotes that are competitive, but we are staffed appropriately, and those clients will get exactly the same standard of service that our long-standing clients receive. When a prospect is looking for a captive manager, everyone wants the best price, and it’s a win-win situation when the price is fair to both the client and the captive manager.
A broker can offer excellent service to the broker-owned captive management firm, but the captive owner has to ask himself who the captive manager is serving. What we aim to accomplish as an independent captive manager is the provision of the best service for our clients. There are no other distractions, no other considerations, and there are no conflicts of interest. We always have the client’s best interests at heart, so we undertake a review of every aspect of that operation, whether it is their investments, their fronting company, their reinsurance company or their third-party service providers, and we ask whether they are really receiving the best services. For instance, is their programme properly structured? Do they have the best limits and deductibles? Do they have the best carrier? Is their reinsurance broker finding the best reinsurance? Are they getting the best price?
We truly have the best interests of the captive in mind and there are no other distractions or conflicts of interest to get in the way of that.
Can a captive manager question the brokers’ efforts when it’s the home company? Can the captive manager question the results of other affiliated companies?
We do not have senior managers with limited oversight on the accounts while leaving the substantive work to be done by less experienced staff. We are well staffed and will continue to be well staffed to handle any future commitments. The number of full-service accounts per manager is less than the industry norm, and each client is assigned a senior account manager who actually handles the day-to-day activities on the account. This organisational structure is key to maintaining our customer service reputation and, as we grow, this fundamental staffing and organisation philosophy will not change. Motivated staff who take pride and ownership in how they manage accounts, and have the proper time to fulfil their high expectations and those of our clients, enhance a successful relationship.
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