When it comes to captives, doesspeed really matter? If there's any doubt, just ask a prospectivecaptive owner who has been hobbled by red tape for months. Legalexpenses and other incurred costs can quickly erode the upsides ofalternative risk management.

Fortunately, delays don't have to be par for the course.Statutory approval times vary greatly between domiciles. In manycases, delays are the result of broker and captive-owner error andoversight rather than overzealous bureaucracy or high applicationvolume. In fact, before the application is submitted, the captiveowner and insurance broker can work to positively influence thecost clock.

Here are five steps that can be taken to accelerate captiveapproval:

1. Meet with the regulators prior tosubmission. Set up a face-to-face meeting with thecaptive-insurance division representatives of the insurancedepartment in the chosen domicile. A meeting helps both partiesidentify potential regulatory issues. Brokers or captive managersshould ask questions about a domicile's preferred structure. Theyshould also inquire about what types of issues create delays. Bysecuring this knowledge up front, brokers circumvent applicationminefields, get the application right the first time and improvethe odds of speedy approval. This often overlooked and very simplestep always pays dividends during the approval process.

2. Know the difference between a captive application andan ACORD application. Many brokers treat a captiveapplication in the same casual manner they would treat a standardACORD application for insurance coverage. This is a big mistake. Anapplication to form a captive is a request for a Certificate ofAuthority to operate an insurance company within the domicile. Itis not a request to place coverage. The difference is profound, andso is the amount of due diligence required.

Brokers should begin the process early to ensure they have timeto produce the required documentation. For example, most captivestatutory regulations require that the organizational charter beapproved prior to formal application review. In essence, this meanscertified copies of the corporate charter, depository agreementand/or letter of credit must be submitted, signed by the insurancecommissioner and approved by the secretary of state prior toapplication submission. If an application is submitted beforecharter approval, a delay is virtually guaranteed.

Most state insurance departments' captive divisions requireseveral copies of the application submitted in binder form. Priorto granting a Certificate of Authority, the department will conducta detailed review of the application. Among other things, thedepartment evaluates:

• Actuarial accuracy
• Proposed captive structure
• Statutory compliance checklist
• Request for waivers
• Organizational and structural viability

3. Think of the application as a legally bindingdocument. The insurance department does not treat theapplication for a Certificate of Authority as a series of“representations.” The captive owner and its representatives shouldthink of the application as a legally binding document that setsout in detail how the captive insurer will operate within thechosen domicile.

Never omit a section or submit an incomplete application. If asection of the application does not seem to apply, explain inparagraph form why the section is inapplicable. Do not write “N/A”or “Does Not Apply,” as these phrases will extend approvaltimes.

4. Overcommunicate plans, issues and situations to thedepartment. Remember that the captive-insurance divisionmust take the application to the commissioner of insurance forfinal approval. Prior to that, any issues that arise and may be atvariance with the submission need to be discussed frankly and on atimely basis with the captive-insurance division. While approvalsteps may vary from domicile to domicile, there is one overridingconstant: There are no good surprises.

5. Understand how to amend or alter theapplication. Captive insurance companies are complexstructures by nature, and despite the best intentions of owners andrepresentatives, alterations in operations or structure areoccasionally required post-submission. Ask how thecaptive-insurance division prefers to receive alterations forapplications under consideration. Learning this information beforethe need for change becomes evident saves time and effort on thepart of both the owner and the examiner.

Opportunity is usually the driving force behind the decision toform a captive. However, many an opportunity has been squandered byunnecessary captive delays. Following the five points above willshorten approval time, control the cost clock, and get your captiveoff to a sound regulatory and financial start.