Captive Owner, Know Thyself
When choosing a captive domicile, risk manager Judith McDonald's recommendation to her colleagues is to "do your homework. Unfortunately, like everything else, I think thats the biggest thing people need to do," she said.
Homework involves meeting and talking with the domiciles regulators and finding out what kind of experience others have had with the domicile.
"If someone says they had difficulty working with a domicile, could never get answers, and on and on, then I think I would question whether that would be a place where I would want my captive," said Ms. McDonald, vice president, corporate risk management for Comerica Bank in Detroit, and past president of the Captive Insurance Companies Association.
"Look for longevity and an infrastructure in place that can work with the captive," she said.
Comerica Bank formed a captive in Bermuda in 1993 because of its international business, Ms. McDonald said at a panel discussion earlier this year at the annual CICA conference. Having a captive also helped Comerica cover their professional liability exposures, she said.
"We had been working with a trust company in Bermuda," she said. "The infrastructure that Bermuda has in place, and the close cooperation between regulators and businesses to facilitate getting things done, as well as the control and standards, are all things that guided us to Bermuda,"
The advantage of having a captive is that "it allows you to control your own destiny to some extent," she said. "Youre not dependent on the commercial insurance companies' policy forms and limitations."
Ms. McDonalds number one caution is to have "adequate information on your own experience so that a captive makes sense for you," she said. "Know why youre setting up the captive in the first place."
Those involved in the process should "have a handle on their own information, such as claims, so when they start talking to actuaries they get accurate feedback," she said. "Its like the old computer saying, garbage in, garbage out. You have to have good information going in before you can have a good result."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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