Captive Insurance Companies Need Independent Directors

Owners of captive insurance companies, as they continue to grow in asset value, need to look at expanding their Board of Directors to include the experienced Independent Director, regardless of domicile. The longer the captive insurance company remains in business, the greater the chance the captive will get into serious issues that will require a good deal of insurance industry expertise.

As an insurance practitioner for 40 years, let’s go over some of the issues that will come up for the “mature” captive taken from actual experiences.

Reinsurance Recoveries

The initial feasibility study contemplated only one reinsurer and now, due to market conditions, the captive insurance company finds itself with five reinsurers, with different limits of excess of loss protections. One of the reinsurers does not want to pay the excess claim and the captive has to select a reinsurance litigation law firm. This is not exactly within the job description of an insurance risk manager. Where does the captive’s risk manager turn for good advice? Does the captive litigate or arbitrate? What is the arbitration process all about, and can captives secure reinsurance recoveries through the arbitration process? Most captive owners have had no experience with this type of event. Failure to collect the reinsurance recovery may result in an insolvent captive insurance company.

Renegotiate the Fronting Fee

How many renewals have you gone through without getting the “front” insurance company to reduce its fronting fee? Who is responsible to devote the financial resources and time to explore new options for a “front” insurance company? Many captive owners never shop their fronting fee on the simple basis that they have no resources available to meet with potentially new “fronts”. It will be necessary for the “fronts” to solicit the captives, as they do at all the captive insurance company conferences held both domestically and offshore, especially in a soft underwriting cycle.

Captive owners need to understand the components of a “fronting fee,” and more importantly, what parts of the “fronting” fee are negotiable. The “front” company has all the components qualified from state premium taxes to residual market fees, to insurance company overhead.

Restructuring the Reinsurance Program

It is the responsibility of the captive owner to continuously monitor the reinsurance program and search for economic options. The pricing of reinsurance is not controlled by any regulatory body and therefore it is market driven. Many captive owners have never been exposed to the reinsurance negotiating process, nor are they in a position to benchmark reinsurance prices. Risk managers have very little national contact, other than their local chapter meetings. The cost of reinsurance is a big factor as respects the profitability of a captive, and must be negotiated by experienced executives. Independent Directors can help with that process.

Independent Directors

In contrast to the captive insurance company, the publicly held insurance company has used Independent Directors, mostly from the accounting and legal professions. Private equity firms that invest in insurers are looking for Board Directors to represent their interests, especially where they have a significant stock position.

Conclusion

More captive insurance companies are going to reach out to Independent Directors, with parental consent.

How to Create Legal Videos Online

At The Hayes Firm we’ve created over 500 legal videos. Needless to say, after all that time, we’ve developed a knack for getting them created, processed, and posted. I’d like to share with you some of our tips and tricks for creating good legal videos that will keep people watching.

There are three major things you need to concern yourself with when making videos.

First, the content.

Second, the hardware.

Third, the distribution.

If any of these things are lacking or missing you are not giving yourself the best opportunity for success. Let’s break down each aspect and try to develop a gameplan to achieve the best results possible.

Content For Legal Videos

When developing legal videos, there are two different schools of thought on what to discuss. The first is broad, overarching concepts that tons of people can relate to. These videos try to cut a broad swath in the hopes that more people will be searching for them on a daily basis. Some examples of topics include ‘how to find a personal injury attorney’, or ‘what is worker’s compensation’, or ‘how to sue somebody’. The good thing about these topics is that a lot of people might need that information, the bad thing is that there is already a lot of material out there covering these issues so it can be difficult to break through.

The second method of content generation is niche focused. These videos take something very specific and talk about that issue in depth. Rather than ‘how to sue somebody’, which is broad, a niche video might focus on ‘how to sue a landscape architect for faulty work’. As you can imagine, that specific scenario occurs far less often than people suing in general, but for those folks who are suing in regards to landscape architecture, you are certain to show up higher due to the limited amount of competition.

Another decision you’ll have to make is in regards to video length. It used to be thought that people’s attention span on the internet only lasted for about 2 minutes. While that’s still true in some regards, plenty of video savants have proven that long video is entirely possible. Gary Vaynerchuk of Wine Library TV puts out a video episode every day, 20-30 minutes in length, and gets hundreds of thousands of views.

When dealing with legal topics specifically, it is easy to get dry and boring. Be careful not to lecture your listeners as it is exceedingly easy to click away and watch something more captivating.

Hardware for Legal Videos

The exact model of camcorder you end up with will be up to you, but there are a few key factors that we should discuss before you make the purchase.

The first is storage style. These days camcorders can retain their footage through vhs-style mini tapes, dvds, or direct hard drives. Each come with their own benefit, but if you intend on putting your videos on the internet, the internal hard drive with an usb jack is a very good choice.

You also have to consider how important HD video quality is to you. HD cameras tend to be a lot more expensive. If you intend to make legal videos that are not terribly fancy or action intensive, then HD probably isn’t a necessity. But, again, it’s totally up to you.

Two other things to consider are mic location and battery life. Front mounted mics tend to be better at picking up the voices of individuals in front of the camera. Good battery life allows to you make more videos in a single sitting, or longer videos without having to get up and then edit out the lapse later on.

Distribution of Legal Videos

Once you have your video taped and ready to go, it’s important that you know how to get the word out.

First of all, you want to have a repository on your home page to house them. After all, if people are visiting you directly, you want to make sure they can find your videos.

Second, you want to create accounts on the biggest video sharing websites – examples include YouTube, vimeo, blip, Google, and revver.

After you’ve created those accounts, make your life easy and sign up for an account with TubeMogul. TubeMogul allows you to connect all of your accounts into one uploading website. Then, whenever you upload a video to TubeMogul, it distributes that video to all the websites you have accounts for.

China’s Captive Market Captures Foreign Businesses

Fear is not the best way to run a business, yet running a multinational company with an office in mainland China leaves you in a strange limbo.

If you want to relocate, you are afraid to follow through because you presume – not without reason – that China will retaliate if you leave. Not only that, but you are afraid to even say that this is what you fear, for the same reason.

Don’t take my word for it. Ask the anonymous chief executive for Asia at an anonymous company, who declined to let The New York Times print his name because of the legal repercussions that can arise from openly criticizing China. He did say, however, that many companies now are “just convinced if they open that R.&D. center in China, every technical secret they’ve got will be copied, every patent exploited.” (1)

The Times further reported that several multinationals have left mainland China for Singapore, while still others express the desire to relocate but hesitate because of reprisals. Such action is far from unheard of. Jardine Matheson reincorporated in Bermuda in the 1980s and delisted from the Hong Kong Stock Exchange in the mid-1990s. In return, Beijing penalized the company for more than a decade, making it difficult for it to invest in mainland China in any substantial way.

Some companies report having difficulty convincing executives to move to China because of air pollution and limited educational opportunities. Given the climate of fear, however, it seems likely that the real reasons for dissatisfaction run deeper.

I have limited sympathy for the companies that now wish they were less exposed to China. They couldn’t resist the lure of a captive market of over 1.3 billion people. And they couldn’t seem to comprehend, though the risks were already knowable and known, that they would become captives themselves in turn.

Belatedly, however, companies are beginning to realize that choosing China for their Asian center of operations was a decision that held serious drawbacks. A survey of over 500 companies, released in May by the European Union Chamber of Commerce in China, registered an atmosphere of pessimism about Chinese profit margins. (2) Barriers to non-Chinese businesses are well known, both in Europe and the United States, and they seem likely to limit growth there.

China lacks freedom of information, freedom of expression and a legal system free of coercion. These three freedoms – a Chinese-sounding phrase if there ever was one – are essential to good business management in the modern world. But companies stampeded into China over the last 20 years for fear of missing out. Now, like it or not, in many ways they find themselves stuck.

They might get lucky. China might evolve into a more open, democratic and free society. It has happened before in places like South Korea. For a brief moment in the 1990s, there seemed to be hope that it was happening in Russia, though today Russia is an arguably worse environment for business than China.

More likely, however, multinational companies will find themselves divided on opposite sides of the chasm that is opening between China on the one hand and its Asian neighbors and their Western allies on the other, who are threatened by China’s increasingly aggressive territorial claims and protectionist impulses. China is big, but it is not an easy market for foreigners, and it could increasingly cost companies business elsewhere in the region.

For now, however, multinationals already have big problems with their Chinese offices. Major companies have faced complaints from Chinese authorities about everything from food safety to “unparalleled arrogance.” While facing prosecution, foreign companies can also find themselves lambasted by the Chinese press. Companies cannot rely upon the force of law to keep them out of trouble in China when authorities there will act in the best interest of the ruling elite regardless.

We can also be sure that whenever an American or European CEO today visits his company’s Chinese headquarters, he carries no data of any significance on his laptop and uses a smartphone specially scrubbed for the purpose – or, in some cases, a low-tech flip phone without Internet capabilities at all. To carry any sort of intellectual property into China willingly is tantamount to surrendering it to the Chinese government.

It’s a heck of a way to do business, but it is the way these companies chose. Now they have to live with it, or suffer the consequences of leaving.

Sources:

1) The New York Times, “Looking Beyond China, Some Companies Shift Personnel”

2) Bloomberg Businessweek, “Is the ‘Golden Age’ for Multinationals in China Over?”