What to look for in a captive manager

Choosing a captive manager is the most important decision a company makes when it establishes a captive insurance program, so it’s critical to hire the right professional.

“Just because someone has an impressive background as a lawyer or an accountant doesn’t mean they know how to run a captive program,” says Andrew Seger, general counsel at Imprise Financial.

“The more effective captive managers will have several years of direct responsibility for a program, so check their references,” he says. “And whoever is picked should really be excited to get involved with the program. Their attitude is important because they are who a company will be working closely with for a long time.”

Smart Business spoke with Seger about what to look for in a captive manager.

What is a captive manager’s role in a captive insurance program?
Captive managers provide prospective clients with advice on whether a captive insurance program is an option that will meet the company’s needs and goals. They handle the implementation and management of the entire program, and make sure the program stays compliant with all applicable state and federal regulations.

What professional backgrounds do captive managers come from?
People with a variety of professional backgrounds will market themselves as captive managers, such as accountants, lawyers and insurance brokers. Many of them are smart, capable people. But if they don’t have direct experience managing a captive program, they likely won’t understand the nuances and regulations involved, and that can be disastrous for a program.

A captive manager should be devoted to managing a captive program and should be independent, not trying to sell the services or products of an insurance company, or an accounting or law firm. If they require a client to use a certain bank or adviser, for example, there is likely a conflict of interest.

What are the more important qualities to look for in a captive manager?
Look for a proven track record of successful program management. Ask how long they’ve been in business, whether it is their main business or if they do something else, and how many captive programs they have established.

Outside of experience, look for a captive manager who is innovative enough to meet their clients’ needs and goals. They shouldn’t be locked into the status quo, but rather be willing to get creative.

Demand financial transparency from a captive manager. Companies should ask potential captive mangers about their fee structure. Some may hesitate to disclose specific fees or say they’re on a sliding fee schedule. Those are red flags. Look for a captive manager who provides the charges clearly and upfront.

How much time should companies expect it will take to find a captive manager?
All companies move through the process at their own speed, with some taking longer than others to conduct their due diligence. It may be helpful to get recommendations from trusted advisers or clients that know of or work with captive managers. Ultimately, all that’s important is that the company is comfortable with its decision because it will be working with that person for the duration of the program.

Once a decision is made, how can companies gauge the effectiveness of their captive manager?
The best way to check on the performance of a captive manager is to look at the performance of the captive program. It should live up to the expectations set by the captive manager in the initial meetings.

Ensure that the claims being paid by the captive program are consistent with what the captive manager suggested upfront.

Some captive managers pass along hidden fees to their clients that can be tough to spot. That’s why really strong financial transparency is important. Make sure that during checkups the fees are clear and the captive program is performing as expected.

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