Insurance Non-Executive Directors

BEFORE BECOMING A NED

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What qualities should a good NED should possess?

 

An insurance NED will need to have extensive technical and managerial experience. They will normally possess a particular expertise, say, as a former (or existing) underwriter, broker, actuary, accountant, lawyer, claims expert, risk manager or Executive Director.

NEDs may be appointed by specific interests, most notably holding companies of subsidiaries or group shareholders, but they cannot be considered genuinely independent.

Sometimes, recognised success in other fields of commercial enterprise or, say, the political or academic world, may qualify for inclusion on a Board as a NED. Ideally, the attributes identified below should also be present.

It should be appreciated that each Executive Director and NED brings expertise to the Board table in his or her particular field. NEDs are not expected to be an expert on every topic, although they do need to be well versed in such matters and to be properly informed.

NEDs will certainly need to be aware of all the duties and responsibilities placed upon them by a variety of regulators or quasi-regulators. They will need to be considered “fit and proper” by the regulatory bodies that approve their appointments.

Both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) will have regard to a number of factors when assessing the fitness and propriety (Fit and Proper Criteria) of a person to perform a particular Controlled Function. All UK regulators’ assessment criteria relate to the person’s:

  • Honesty, integrity and reputation
  • Competence and capability
  • Financial soundness (as an individual)

In August 2015, the PRA published a key Supervisory Statement (SS35/15) entitled “Strengthening individual accountability in insurance” which comprehensively identified their latest fitness and propriety criteria for all Directors.
 
All Directors have collective responsibility for the success of their company. In particular, NEDs have a key role in scrutinising and challenging the performance of Executive management. This means that NEDs should be able to:

  • Provide leadership of the company within a framework of prudent and effective controls which enables risk to be properly assessed and managed
  • Scrutinise the performance of Executive management in meeting agreed goals and objectives and monitor the reporting of performance
  • Support and encourage the Executive Directors in their management of the business of the company
  • Be satisfied with the integrity of financial information and ensure that financial controls and systems of risk management are robust and defensible
  • Ensure that an appropriate governance structure is in place to manage the business of the company
  • Contribute to the development of values and standards that will be communicated to all employees of the company
  • Be involved in setting business strategy, and provide constructive challenge thereon
  • Promote and seek high levels of compliance with all regulatory requirements
  • Approve and continually monitor the risk management framework, including the company’s risk appetite and supporting risk policies
  • Receive and understand appropriate reports from the various Board Committees
  • Ensure that the Board reports, as appropriate, to key stakeholders*
  • Ensure that the necessary financial and non-financial resources are in place for the company to meet its objectives
  • Be a member of the designated Board Committees, according to their particular expertise, and fulfil the responsibilities as set out in their individual terms of reference
  • At all times, uphold the highest standards of integrity and act in the best interests of the company

 

In short, NEDs should possess a range of recognisable business qualities that will enable them to add value to a Board of Directors as an individual, while, at the same, contributing to the collective success of the leadership team of an enterprise.

* Key stakeholders are usually regarded as shareholders and capital providers or other investors, as well as customers. However, NEDs have a duty of care to a wider definition of stakeholders, which would include staff and their representatives, brokers (for insurers or underwriters), insurers or underwriters (for brokers), agents and other intermediaries, regulators, franchisors (e.g. the Corporation of Lloyd’s), and other members of recognisable markets and professional bodies. Under certain circumstances, local communities could even be included, especially when it comes to matters such as corporate social responsibility.

Executive search firm, Per Ardua, have provided a useful overview of the Referencing Criteria for Referees of Aspiring NEDs in insurance.