Insurance oversight update

$1 BILLION Judgement Against Ponzi Scheme Operators
January 29, 2019
FINRA Experiences Record Volume
February 13, 2019

New code of conduct for captive managers

The Self-Insurance Institute of America Inc. (SIIA) has released its SIIA Captive Manager Code of Conduct to guide captive managers in their insurance and reinsurance businesses and educate and protect current and potential clients.

In a recent issue of Business Insurance, Reporter Gloria Gonzalez noted the new conduct code is aimed at guiding captive managers in ethical business practices and addressing some of the criticisms, and perhaps stave off a formal effort to further regulate their activities. Captive managers serve as the “eyes and ears” of regulators obliged to warn captives following unsound practices in underwriting claims, investments, or operations, and then report them to the regulators when those captives fail to take corrective action.

Setting professional standards

At issue is establishing professional standards (sound familiar broker-dealer or RIA reader?) before the regulatory agencies weigh in. Citing the growth of the captive management industry, increased regulatory focus on captives and captive managers, criticism of the captive manager function, recent Internal Revenue Service scrutiny and court cases has prompted the industry to set a performance bar to help regulators, policymakers, and potential and existing clients identify what to look for in a professional captive manager.

Regulators have noted for some time that no existing code or law specifically addressed how captive managers conduct business. Establishing a standard is considered a first step to making the case that the industry is functioning properly.

The code covers five canons: integrity, conflicts of interest, confidentiality, advertising and practice management. In the integrity section, for example, the code states that captive managers should not willfully violate any laws or regulations, should be familiar with the federal and state laws that regulate captives and insurance transactions and should cooperate with the domicile regulators and inform their clients they must do so.

Tell the truth. Avoid “tap dancing.”

The new code’s integrity section also specifies that captive managers should represent their qualifications and capabilities accurately to prospective and current clients. Bottom line, the article advises, tell the truth. If, for example, a captive manager has never managed a risk retention program, the code suggests the manager disclose that information and not attempt to manage one, or give clients the impression that they have that expertise.

Captive managers should avoid conflicts of interest, but the code notes that it is common practice in the captive industry for a manager to provide multiple services to the same client, which can create a potential conflict of interest. But “the use of proper disclosures and checks and balances can prevent a potential conflict of interest from becoming an actual conflict of interest and allow a captive manager to properly and ethically provide multiple services to the same client,” the code stated. “Where providing multiple services to the same client, a captive manager should ensure full disclosure and employ appropriate checks and balances.”

SIIA has put together another working group to revisit the code on an annual basis and examine how to include educational content based on professional conduct for its members and perhaps some enforcement mechanisms.

What keeps captives and captive managers compliant?

How do you keep captives and captive managers from “going off the rails?” That’s where Patrina comes in. We’ve built our business based on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.

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