“A HIGH QUALITY AND WELL CONSIDERED BUSINESS PLAN IS ESSENTIAL
FOR HELPING THE CAPTIVE ARTICULATE ITS STRATEGIC OBJECTIVES.”
34 cayman captive 2019
developed in conjunction with the insurance manager and other
outsource providers, it is the board which is ultimately responsible
their design and for ensuring that they are being complied with.
Providing evidence of compliance with appropriate policies and
procedures is becoming increasingly important because of CIMA’s
inspection regime. Generally, we see boards confirm compliance
through the performance of either a formal or informal self-evaluation
process, and we question whether this process could be improved.
For example, most hospitals or healthcare providers which have
a captive insurance vehicle are sizeable organisations with an
established internal audit function who could be commissioned to
look at the way in which the captive complies with its stated policies
and procedures. Alternatively, the review could be sub-contracted
to a third party provider with the particular experience of the captive
The benefit of a review by the internal audit function or third party
provider is that they can carry out an independent assessment of the
captive’s business-critical policies and procedures, including a review
of its outsourced activities.
The self-assessment or internal audit review should help the board
• The framework for outsourcing, including the outsourcing policy,
is correctly and effectively implemented and is in line with the
applicable laws and regulation, and with the captive’s risk appetite;
• The risk appetite, risk management and control procedure of the
outsourced service provider are in line with the captive’s strategy;
• The appropriate involvement of governance bodies; and
• The appropriate monitoring and management of outsourcing
In conclusion, captives are a cost-efficient way for hospitals and
other healthcare providers to manage their risks. These efficiencies
are often derived through the use of outsourcing arrangements.
However, management, including the board, must guard against
the risk that it becomes over-reliant on the outsource service provider.
This can be achieved through the board’s retaining ownership of the
development of the captive’s strategic objectives and through the
establishment of comprehensive outsourcing policies and procedures.
These should define key performance indicators, key control
indicators and the other service delivery reports that the board can
use in managing its relationship with its outsource suppliers.
Philip Alexander is a partner at RSM. He can be contacted at:
In providing sound and prudent management, boards should apply
their collective knowledge and experience of the parent hospital or
healthcare provider to provide meaningful insights to help set informed
objectives for the captive. Too often we do not see evidence that the
board has had sufficient input into the key governance processes.
For example, apart from when the case is being made as to whether
to establish a captive insurance company or not, we do not see
evidence of board involvement in the business planning process.
Often the formal plan reads as if it is a regulatory necessity prepared
from a ‘boilerplate’ template by the insurance manager.
As a result, many of the benefits which may be derived through the
setting of qualitative and quantitative standards against which the
captive’s strategic performance may be judged are potentially lost.
In the case of qualitative standards, we would expect the business
planning process to consider developments at the parent hospital or
healthcare provider and to assess how this may influence the captive.
We have seen instances where there has been material adverse loss
development within the captive and where little analysis has been
performed to ascertain the root cause for this, nor consideration of the
implications for the captive in the future.
In the health sector there is a lot of industry data, such as the Aon/
ASHRM Hospital and Physician Professional Liability Benchmark
Analysis, which boards can use in analysing the captive and setting
the qualitative standards. We realise that a lot of this analysis will be
occurring at the parent level, but the captive insurance company is
a separate legal entity where there is a regulatory requirement for
boards to be intimately involved in the planning process.
From a quantitative standpoint, the main measure we see is in
respect of premium rating. In the best plans we see evidence of
challenge of the actuarially determined rate. This challenge takes
the form of understanding the sensitivity of changes in the rates from
setting these at various percentile levels and the formal consideration
of the captive’s financial strength and its ability to absorb losses,
should experience be worse than that assumed when the rate was set.
The latter necessitates that the board has a view of the economic,
as opposed to regulatory, capital that is required within the business.
The quantitative measures within the business plan also provide the
financial benchmarks against which performance may be assessed
and our experience is that, too often, boards may not have sufficient
understanding of why actual performance is better or worse than the
initial plan and then consider the implications for the business.
A high quality and well considered business plan is essential for
helping the captive articulate its strategic objectives. The captive’s
policies and procedures hang from this and although these will be