April 22, 2010
Governance issues should be factored into the initial decision to establish a captive and should be revisited systematically and periodically once the decision to go ahead is made. Similar issues arise in both the public company and privately owned context, but the response to those issues will vary as a function of the different contexts. In the broadest sense, the governance issues relate to director- and officer-responsibility for appropriate due diligence and balanced risk-management decisions, at both parent and captive insurance company level. When the captive is organised, a significant component of those decisions relates to the selection and scope of coverages. Thereafter, monitoring of claims handling under those coverages is crucial, with a view to the impact on the affected constituency, employees, customers, and affiliates, for example. The question then becomes: within the established cost parameters, is the captive appropriately fulfilling its duties to the insureds?