The independent outside insurance company director is facing new challenges as the industry goes through constant change in regard to underwriting cycles. Consequently, chief executive officers of insurers need to look for more experienced insurance industry directors for their boards.

It's not enough to put retired accounting or outside counsel executives on the board. These types of candidates must be supplemented by a new director that has significant insurance and reinsurance industry experience. These directors can act as a mentor, rather than a “rubber stamp” for the insurer's CEO.

Insurance and reinsurance company director compensation is rising. This is as it should be, since director roles are assuming more importance in running the operational affairs of carriers.

Directors must be available to attend urgent meetings, such as reinsurance negotiation sessions with the CEO. Directors also should be available to attend insurance company stock analyst meetings, as well as telephone conferences with the CEO and chief financial officer.

Importantly, directors need to understand the financial consequences of uncollectible reinsurance recoveries.

Insurer and reinsurer directors need more than a legal and/or accounting/tax knowledge of the insurance industry. Retired law partners and retired accounting partners need to be supplemented by more insurance industry-active directors.

In the future, directors will need in-depth knowledge of the insurance and reinsurance industry to ask the right questions, and to keep the other directors informed about the industry.

These informed directors will be active in the industry and attend many industry meetings of insurers, agents and brokers, captives, financial insurance and other relevant gatherings to keep up with the times and trends shaping and challenging the business.

The new independent director should be familiar with rating organizations and active in the insurance industry. In fact, directors who are not familiar with the new demands being made by rating agencies in their carrier assessments are not an asset in times of crisis, when downgrades might lead to the downfall of insurers and reinsurers.

The Internet paves the way to instant communication. When an insurer is downgraded, e-mails fly and competitors are waiting in the wings to steal away business.

State insurance regulators, going through yet another challenge from those who would have the federal government involved, have stepped up their financial scrutiny of insurers and reinsurers. Industry overregulation even has Lloyd's syndicates going to Bermuda to take advantage of less regulation.

CEOs of publicly-held insurance and reinsurance companies are faced with the challenges that hedge funds, as investors, provide. Patience is not in their vocabulary, but a high return on investments is high on their priority list. Insurance industry stock analysts ask better questions and have more training in understanding insurance and reinsurance company financials.

The new director wants to be kept better informed by CEOs, and has a better understanding of the industry to raise better and more comprehensive questions. Directors in the future will need to understand the CEO's attitudes, smarts, flexibility and any bias in regard to the insurance or reinsurance industry.

Finally, since today's insurer CEO needs a functional knowledge of marketing, underwriting, investments, financial, actuarial, claims, tax, accounting and legal challenges, the board of directors needs to have the same degree of functional diversity to assure the insurer's or reinsurer's success.

“Directors will need in-depth knowledge of the insurance and reinsurance industry to ask the right questions, and to keep the other directors informed about the industry.”

Andrew J. Barile

Special Reports /

New Challenges Demand Better-Informed Insurer Directors

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