When it comes to captives, does speed really matter? If there's any doubt, just ask a prospective captive owner who has been hobbled by red tape for months. Legal expenses and other incurred costs can quickly erode the upsides of alternative risk management.

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

Here are five steps that can be taken to accelerate captive approval:

1. Meet with the regulators prior to submission. Set up a face-to-face meeting with the captive-insurance division representatives of the insurance department in the chosen domicile. A meeting helps both parties identify potential regulatory issues. Brokers or captive managers should ask questions about a domicile's preferred structure. They should also inquire about what types of issues create delays. By securing this knowledge up front, brokers circumvent application minefields, get the application right the first time and improve the odds of speedy approval. This often overlooked and very simple step always pays dividends during the approval process.

2. Know the difference between a captive application and an ACORD application. Many brokers treat a captive application in the same casual manner they would treat a standard ACORD application for insurance coverage. This is a big mistake. An application to form a captive is a request for a Certificate of Authority to operate an insurance company within the domicile. It is not a request to place coverage. The difference is profound, and so is the amount of due diligence required.

Brokers should begin the process early to ensure they have time to produce the required documentation. For example, most captive statutory regulations require that the organizational charter be approved prior to formal application review. In essence, this means certified copies of the corporate charter, depository agreement and/or letter of credit must be submitted, signed by the insurance commissioner and approved by the secretary of state prior to application submission. If an application is submitted before charter approval, a delay is virtually guaranteed.

Most state insurance departments' captive divisions require several copies of the application submitted in binder form. Prior to granting a Certificate of Authority, the department will conduct a detailed review of the application. Among other things, the department evaluates:

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

3. Think of the application as a legally binding document. The insurance department does not treat the application for a Certificate of Authority as a series of “representations.” The captive owner and its representatives should think of the application as a legally binding document that sets out in detail how the captive insurer will operate within the chosen domicile.

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

4. Overcommunicate plans, issues and situations to the department. Remember that the captive-insurance division must take the application to the commissioner of insurance for final approval. Prior to that, any issues that arise and may be at variance with the submission need to be discussed frankly and on a timely basis with the captive-insurance division. While approval steps may vary from domicile to domicile, there is one overriding constant: There are no good surprises.

5. Understand how to amend or alter the application. Captive insurance companies are complex structures by nature, and despite the best intentions of owners and representatives, alterations in operations or structure are occasionally required post-submission. Ask how the captive-insurance division prefers to receive alterations for applications under consideration. Learning this information before the need for change becomes evident saves time and effort on the part of both the owner and the examiner.

Opportunity is usually the driving force behind the decision to form a captive. However, many an opportunity has been squandered by unnecessary captive delays. Following the five points above will shorten approval time, control the cost clock, and get your captive off to a sound regulatory and financial start.

Special Reports /

Managing the Cost Clock: A Five-Point Checklist for Accelerating Captive Approval

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