Key components of captive management

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At its highest level, captive management focuses on four key areas:

  • Underwriting - It is the process of reviewing and evaluating risk for potential coverage, setting premium rates, reviewing coverage applications and writing policies. The initial critical step of the underwriting process is defining the insured. The underwriting process also requires the establishment of underwriting policy. A clear underwriting policy is necessary to ensure that the captive is indeed operating as an insurance company.
  • Claims management - Deciding what risk to underwrite is an important first step of the captive operations process. Equally important is having a mechanism in place to handle the claims that result from the policies written. In fact, this step should be carefully considered before any risk is underwritten given that the claim management system must be capable of handling the volume and type of claim that could result from the underwritten risk.
  • Financial management - While nothing about managing a captive insurance company is unimportant, it can be safely said that financial management is among the most important functions. After all, the captive is a financial management tool. Management of this function will likely involve more of the captive owner’s internal resources than any other operations management function. The captive will influence risk financing decisions, tax decisions, capitalization decisions, cash management decisions, capital investment decisions, and so on.
  • Compliance/reporting -The reporting and compliance issues for a captive insurance company are not as onerous as those for a traditional insurance company. This is because the captive insurance companies are not offering insurance to the public. Each domicile has specific reporting requirements. The domicile’s captive regulations will identify the type of reports it requires and the frequency of those filings. You will find that these filings and their frequency are similar among the domiciles.