Joe McDonald, executive vice president and director of captive consulting at Captives.Insure, looks at operational complacency and how a ‘set it and forget it’ course kills captives
Complacency is often a silent killer — and in the world of captives, that is certainly true. Using a maritime analogy, imagine a ship on the open ocean, left to drift on a heading plotted in the past when it left the harbour.
No seasoned mariner would leave a ship to sail on a fixed bearing while ignoring changing weather patterns, ocean currents, and shifting trade winds.
They monitor instruments, adjust sails, navigate around storms, and make calculated decisions to ensure the journey remains safe and efficient. Captives, like ships, require the same vigilant oversight.
If you do not know who, or assume someone else is conducting this on-going oversight, that is what operational complacency looks like in a captive insurance company.
Captive owners and their service providers can fall into the trap of treating the captive like a set-it-and-forget-it solution — form it, fund it, file the paperwork, hold the annual meeting, pay claims, and wait for surplus to accrue.
But captives, like any vessel navigating uncertain seas, require attentive steering, routine maintenance, and intentional recalibration to stay on course. The waters shift constantly, and failure to adjust course invites risk and erodes performance.
Staying on course in changing conditions
A captive is many things — a solution, a vehicle or vessel, a means to an end — with a specific goal or destination.
That destination might be long-term risk financing efficiency, tighter claims control, underwriting profit, or improved access to reinsurance markets.
But no ship, no matter how well built, will reach its destination without an attentive crew and an experienced and engaged captain. The operating environment itself is not static. Business models evolve. Risk appetites shift. Legal frameworks and regulatory tides rise and fall. Market conditions turn from calm to choppy in a matter of months. The idea that a captive can be left on a fixed heading indefinitely is not only flawed — it is dangerous.
Without it, the structure may remain intact, but its purpose is compromised. The vessel keeps moving — but not necessarily in the right direction.
Routine maintenance:
Annual checkups for captive health
The business plan filed with regulators during the captive’s formation is a ‘living’ document — it is the ship’s log and nautical chart. It should guide annual operations, inform decisions, and be reviewed regularly to ensure it still aligns with the organisation’s strategic goals.
Each year, the board and key stakeholders should conduct a review of the captive’s business plan and operational performance. This process should evaluate whether the captive has met its stated objectives and whether actual results are consistent with projections. It should also consider any changes in the parent organisation’s structure, strategic direction, or risk profile that may warrant adjustments to the captive’s role. As part of this review, stakeholders should assess the alignment of premiums with exposures and retained risk, review claims from the previous year and development trends on reserving and pricing, and discuss possible options for the use of surplus.
This process is essential routine maintenance to ensure long-term performance and resilience.
Deep overhauls:
Strategic reviews every three to five years
In addition to annual checkups, every captive should undergo a more comprehensive strategic review every three to five years. Think of this as the haul out for a ship; inspect the hull, scrape off the barnacles, check for leaks, and make necessary repairs before returning to open water.
This broader evaluation serves as essential long-term maintenance — ensuring the captive will remain aligned with the parent organisation’s evolving future objectives and continue to operate effectively in a changing environment.
A strategic review should assess whether the captive’s current coverages remain appropriate and whether opportunities exist to expand into new lines or retentions should be adjusted. It should evaluate the effectiveness of fronting arrangements, reinsurance strategies, and investment practices, as well as identify any operational inefficiencies or duplicative administrative costs. The governance framework should also be reviewed to ensure it remains suitable, particularly in light of any regulatory, tax, or domicile changes that may have occurred.
Ultimately, this provides a valuable opportunity to reassess the captive’s direction, explore enhancements, and determine whether structural or strategic adjustments are necessary to support future goals.
This broader review allows the organisation to rethink the voyage itself — whether the destination has changed, whether new ports of call should be added, and whether the ship needs upgrades to reach its goals.
Why independent consultants matter
A strategic review is an opportunity to reconsider and challenge presuppositions, target goals, principles, and foundational assumptions. And while internal teams and current service providers contribute valuable insights, their proximity to day-to-day operations can sometimes obscure the broader view.
That is where independent consultants bring value. They offer an objective outside perspective — free from legacy decisions, internal politics, or vested interests.
Independent consultants offer a valuable external perspective during strategic reviews. Their objective evaluations help benchmark captive performance against industry standards and uncover both hidden risks and untapped opportunities. These reviews often reveal underutilised or inefficiently deployed capital, outdated or inaccurate risk models, offer new capacity providers, and opportunities to optimise reinsurance strategies. They may also identify operational redundancies, administrative inefficiencies, and gaps in governance or compliance frameworks — particularly in light of evolving regulations. Consultants also bring market intelligence and comparative insights from other captives, enabling owners to benefit from broader trends.
Vigilant ownership
Even the most seaworthy vessel will not perform without an engaged captain. And one of the greatest threats to captive success is passive ownership.
When boards simply rubber-stamp renewals and go through the administrative functions of owning an insurance subsidiary they reduce the captive’s potential to that of a life raft — useful only in emergencies, rather than a strategic asset helping to chart the future.
Captive owners need to understand the vessel they command. That means attending meetings with curiosity, asking informed questions, and holding service providers accountable. It also means creating a culture of stewardship — where everyone involved views the captive as a vital part of the organisation’s broader strategy.
Active ownership leads to more nimble course corrections, better performance, and more confidence in the ship’s ability to weather storms and explore new opportunities.
Do not drift — command the helm
Captives are inherently flexible and powerful tools — designed to respond to evolving risk and support long-term financial strategy. But they do not operate themselves.
Left adrift, even the best-constructed captive will stray from its course, become inefficient, and eventually lose relevance.
The antidote to complacency is deliberate engagement — regular monitoring, annual maintenance, periodic deep reviews, and strategic recalibration. These are the practices that keep the ship not only afloat — but advancing toward its destination with purpose and precision.
So do not drift. Take the helm. Study the map. Watch the weather. Make course corrections when necessary.
The view from the deck may be calm today, but it is the decisions made in clear conditions that determine how well the ship performs when the seas get rough.
The best captives are not just built soundly — they are
piloted well.
