Insurance Non-Executive Directors

THE BOARD IN ACTION

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I’m on the Board. What should I be looking for?

 

The purpose of a Board of Directors in any commercial enterprise is to ensure the success of the firm by collectively directing and leading the company’s affairs. The Board of Directors is usually answerable to the company’s shareholders, or capital providers, but, as we have seen, it should also act responsibly on behalf of a wider number of stakeholders.


ROLE OF THE BOARD

This section addresses the Board in action by offering guidance as to what a NED should expect to see, and be part of, in terms of corporate governance and Board effectiveness. It also identifies the main workings of a Board and its Committees and comments upon the key technical issues that will confront a NED across a variety of insurance Boards.

The comments offered in this Information Bank are primarily applicable to Boards in the regulated sector. They may be Boards of PLC entities; Boards of Holding companies or what might be termed authorised and regulated managing or operating Boards that run the actual businesses in the underwriting and broking sectors. Irrespective of their structure or nature, their NEDs all share the responsibilities and rewards that are outlined in this section.

The IoD sees the Board of Directors of a commercial enterprise as facing a demanding set of sometimes paradoxical challenges. It must be simultaneously entrepreneurial and drive the business forward while maintaining prudent control.

The Board must be knowledgeable about the affairs of the company while, at the same time, being sufficiently objective so as to retain and develop a long-term, strategic view.

The Board must be cognisant of domestic and local market issues, particularly as they relate to economic conditions or regulation, while being informed about increasingly global influences such as competition.

The Board must focus upon commercial success while behaving responsibly towards its employees, customers, business partners and, in the case of the UK insurance sector, its regulators (or quasi-regulators, such as the Corporation of Lloyd’s).

A Board should also create, develop and sustain a culture that permeates its company. In carrying out its leadership role it should “set the tone from the top.”


INDUCTION

Before a Director joins a Board, or before a new Board is formed, an essential aid to managing the affairs of the Board will be the induction session. Induction can take many forms and there is no prescribed format. It may take a few hours; for a new enterprise, it could be spread over a short number of days.

In any event, the Chair and CEO, or Company Secretary or the Head of Compliance, or a combination of all four, should convene and facilitate a fully documented session (or sessions) that covers the following fundamentals:


An Introduction to all Board Members

  • All Directors should have an opportunity to get to know each other
  • Biographical details and career histories should be presented
  • Particular areas of expertise should be identified
  • Valued connections could be identified


General Governance

The following might be tabled or provide by way of preparatory reading:

  • Companies Act 2006: Duties of Directors
  • PRA / FCA requirements
  • Minimum governance standards (external and internal)
  • Memorandum & Articles of Association
  • Terms of Reference for Board and Board Committees
  • Specific reference to the role of NEDs
  • The company’s formal corporate governance policy


Corporate Strategy

  • The key aspects of strategy should be discussed in the short, medium and longer term
  • Targets, objectives, performance criteria and goals should be identified
  • Business plans should be provided along with a range of forecasts
  • The means of delivering that strategy should be clearly laid out
  • A company’s corporate vision or mission statement might be presented


Expectations

  • Expectations of the Board as a whole should be discussed
  • Expectations of the Directors in their distinctive Executive and non-Executive roles should be discussed
  • Expectations of the firm in terms of its culture and values should be discussed
  • Leadership issues should be surfaced
  • The company’s role in a market or the wider society might be debated


Corporate Structure

  • The structure of the company, including its relationship to others in a group, should be discussed
  • Key functions or departments should be identified along with the roles and names of Executives and managers at each level or tier of management
  • Reporting lines should be made clear
  • Organograms, organisation charts and governance maps should be produced
  • A list of advisors, bankers, accountants, corporate lawyers and auditors might be provided


Generic Data

  • Existing or projected financial MI for accounting, including budgets, expenses, investment returns and projected profits could be discussed
  • Projected dividends, returns to shareholders or returns on equity might be debated
  • Other forms of MI for reporting risk management, compliance or HR issues such as “dashboards” might be produced


Insurers’ Data

  • Existing or projected MI for underwriting and claims might be presented, analysed by way of triangulated statistics, ratios, reserves, class of business codes or by territory
  • Aggregate concentrations of risk and catastrophe exposures might be presented
  • An outline of Solvency II, including internal models, might be presented
  • Combined operating ratios


Brokers’ Data

  • Income / margin levels for individual divisions
  • Spread of business by territory
  • Spread of premium by market used
  • EBITDA* level
  • Cash flow
  • Customer retention levels

* A measurement of a company’s operating profitability; equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue.


Logistics:

  • Terms of reference and matters reserved for the Board should be made clear
  • Board and its Committee dates should be clearly identified
  • Time commitment and diary management issues should be aired
  • Provision of MI, Committee reporting, agendas and Board packs should be discussed
  • The provision of minutes, including their timeliness and form, should be discussed
  • Reference should be made to future Board appraisals