As the growing sophistication of captive insurance companies leads to increasing levels of regulatory scrutiny, the need for more robust governance and a wider range of expertise on the captive board grows, including the use of independent non-executive directors (iNEDS). What is an iNED? What benefits do they bring? What experience should they have? And, what happens if they underperform?
An iNED is an individual who is a director (member) of the board of directors who does not have a material or pecuniary relationship with the company or related persons. The iNEDS’s role is to provide independent oversight and constructive challenge to the executive directors.
In some jurisdictions an iNED is compulsory, but whether legally required or not, an iNED will help ensure all corporate governance and compliance requirements are met, and help demonstrate to the local regulator that the captive takes its governance requirements seriously.
Bringing relevant skills and experience
The qualities required of an effective iNED vary depending on the needs of the captive, but they are likely to bring relevant skills and experience currently missing from the board. “A captive board should collectively have a balance of skills, and a broad range of experience, hence an independent director does not necessarily have to have a risk and insurance background, if this skill is already addressed,” says Ann O’Keeffe, Chief Risk Officer, Aon Captive & Insurance Management.
Contract certainty
Once appointed, a service level agreement or contract should clearly outline the director’s job, remuneration, their responsibilities and what is expected of them adds Julia Graham, Deputy CEO and Technical Director, Airmic. “A contract, or service level agreement, signed by both parties, is beneficial for the captive and the director so that responsibilities and expectations are clearly outlined in advance.”
Under performing iNEDs
If it becomes clear an iNED is not fulfilling their responsibilities – missing meetings for example or being generally unprepared – the board has a duty to address it and can choose not to renew the term of a director if it is felt they are underperforming, or if new skills are identified as lacking from the board’s composition.
This is an edited extract from ‘A Practical Guide for Independent Non-Executive Directors on Captive Boards’ – an Airmic Guide, produced in partnership with Aon Captive & Insurance Management – developed as a resource for individuals serving as directors on captive boards or considering an appointment in the future, as well as providing valuable information for captive managers and captive owners.
Download the complete guide