Wednesday, July 24, 2024

Membership options

Sophisticated captives need more value from boards, iNEDs – Stephen Cross

Increasingly complex and sophisticated captive insurance companies should be seeking more value from their boards and independent non-executive directors, according to Stephen Cross, group COO & head of innovation & strategy at broker McGill & Partners.

Speaking in an exclusive and wide ranging interview in episode 106 of the Global Captive Podcast, Cross discussed a range of topics, including his long history working with captives beginning in the 1990s at International Risk Management Group (IRMG) and at Aon following its acquisition by IRMG.

He explained McGill’s growing presence in the captive sector, particularly with regards reinsurance broking for large and complex accounts, and debated the broker-owned versus independent captive manager model.

One area his passion for captives and their continued evolution shone through, however, was when he discussed the role of captive boards and independent directors and how in some instances they are not keeping up with the increasing sophistication of captives.

“The stronger captives have got stronger and a lot of the risk managers have got more sophisticated,” Cross said. “The statistics stand on their own – more domiciles, more captives, more concepts.”

He highlighted that while legislation has changed in the corporate world to improve governance and ensure board members are rotated regularly, that has not happened in the captive market.

“I’ve seen a lot of ex-captive managers sitting on 20, 30 captive boards for a decade or way more,” Cross said.

“You’re not really getting the fresh thinking; you’re not getting the innovation and you get probably a bit confused with the compliance directive and people giving challenge for the sake of challenge.

“I have got feedback from a number of clients – not captive clients of ours, but they’re clients with captives. They’ve described some of the iNEDs and the challenge that’s perceived…  it’s interesting, but unimportant.

“I think there’s something in that and we have to listen to our clients and say is the concept of challenge helping or hindering the captive insurance world? And I would say it’s hindering.”

Cross added that if the Lloyd’s and UK captive regimes gain traction, one advantage will be the volume and diversity of experience and talent that is available in London’s square mile.

Just as essentially, however, captives and their owners must be prepared to embrace, value and pay for higher quality and dynamic board directors.

“Equally, by the way, it’s a two-way street,” Cross said. “Captive owners have to be prepared to say we want to invest in this and if you want pay whatever it is, £5,000 or £10,000 to a local director in XYZ domicile, great, but that’s what you’re going to get for it. You’re going to get a bit of the bean counting and a bit of the challenge.

“If you want to really think about growing the captive and thinking about risk as you should think about risk today, because it is very much a board topic, I think you need to bring in people that are a bit more qualified to think in that regard, and there’s a cost associated with that. But to me, everything is a cost versus return.”

He emphasised while some trends in the insurance and the corporate world come and go, captives have been here to stay for a long time and really come into their own during a hard market, as has been evidenced in recent years.

“That is when your board as a captive owner is looking to you to ensure you can get the capacity you need, ensure that the capacity that you’re bringing to the table is rated correctly and obviously priced well,” Cross added.

Listen to the full interview with Stephen Cross on episode 106 of the Global Captive Podcast here, or on any podcast platform. Just search for ‘Global Captive Podcast’ on your podcast app of choice.