Guernsey: Brokers Must Adapt To Survive

Last Updated: 19 June 2007
Most Read Contributor in Guernsey, September 2018

Originally published in Captive & ART Review Guernsey Supplement, May 2007

Could independent brokers be missing out on wider business opportunities in the small and midsize enterprises (SME) community by not getting involved with captives? Charles Allen, of Heritage Insurance Management (formerly Prism Insurance Management) a member of the Heritage Group, thinks that not enough is being done to apprise brokers of the potential benefits of introducing captive insurance concepts to their larger clients – which is where the independent manager steps in.

The ideal candidate for the evolution from captive-shy to captive-friendly is a broker who doesn’t have within their organisation the ability to offer a captive management arm to theirs clients, or the knowledge and/or will to do so. The ideal partner to effect this change in attitude is, in Allen’s view, an independent captive manager with no ties to a broker, insurer or other service provider, who is therefore in a position to offer that service to the broker on a no-conflict basis.

"There’s one particular quotation from Charles Darwin that we often use when we talk to brokers about the role of the independent captive manager and captives in general," says Allen: "It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change."

In other words, it is the broker who can move with the times and make sure that they’re always offering the newest and best technology in insurance terms. "Adaptation to change, in our view, is accepting the fact that self-insurance is a very useful tool, for many businesses," says Allen. "It fulfils a number of objectives. It allows them to write policies that perhaps they find it quite difficult to place in the open/retail market, thereby accessing the reinsurance markets behind some form of captive retention or other involvement. It also allows them to look at wordings and the extent to which certain types of coverage are excluded in the market."

Allen is concerned with middle-tier and smaller brokers who could be persuaded to offer captives or cells in protected cell companies (PCCs) to their clients. His argument is that brokers, at the point of renewal with a client, should be in the position of offering the widest possible selection of alternatives and innovative ideas to their clients. Many brokers, in his view (and especially the smaller ones) will have a few ‘star performers’ – star clients in their portfolio – who are essentially very high fee-earning or commission-earning clients for the brokers.

"They are at risk from the larger brokers – Marsh, Willis, Aon – or those brokers, shall we say, who have their own captive management offering and have experience at doing that sort of structuring," he says. "They need to have that in their armoury, whether they use it or not."

Minimal dilution

The issue at stake in persuading brokers of the value of captive business is the apparent difficulty of convincing them that they are not going to lose their carefully nourished brokerage by allowing clients to choose self-insurance. The introduction of a captive manager into the relationship with the broker and client implies a dilution of control, but Allen refutes this. "The loss of brokerage is usually minimal, and is often more than compensated for by reinsurance-placing opportunities and new policies not previously placed by that broker," he says.

There is also scope, once the captive has been started, to examine the risk management strategy of the company as a whole. Brokers will, of necessity, become closely involved in that process because the reason the examination process is going ahead is precisely that the broker has introduced a new form of risk transfer and financial enterprise to that client in the first place.

And this is where the relationship really starts to bear fruit for both parties. In examining the risk management strategy of a client, the broker comes across other policies – perhaps held by other brokers, or policies that haven’t even been placed yet – and they pick up more business from that client, which is either placed into the captive or direct into the market.

As Allen explains: "There’s other business within that client that the broker didn’t previously see, which he is now being made privy to because he’s providing more than just an annual renewal service on a certain number of policies."

But why should brokers be wary of captives in the first place? Allen believes there is sometimes a natural resistance within the broking community to third parties getting involved with their client on the placing side.

"There’s a great deal of trepidation about the relationship being shared," he says. "They’ve got the relationship, they’ve spent a lot of money on securing the client and making sure that client receives excellent service – and when another service provider comes on the scene, there is a perception that it could dilute the relationship they have worked hard to secure."

It would seem that middle-tier brokers might have something to learn about captives and their potential advantages. However, Allen says that as long as they do at least find out what captives are and how they operate, then it doesn’t really matter if they then sit on that information, as long as it’s at their disposal when confronted by a client who wants details of this option.

"The broker needs to be clued up on that. If the client’s heard of it and the broker hasn’t, then that’s the wrong way round," he says. "It’s the broker who should be saying to the client: ‘this is another way of transferring risk, and we can assist you in tackling this process’. I would have thought that’s a very good opportunity for a broker to shine in front of their client, even if it doesn’t happen."

Case study success

Heritage’s approach to getting brokers on board the captive ship is to make presentations to about six to 10 smaller brokers each year, giving them case study examples to illustrate what can be achieved. Its success rate has been to secure new captive or cell business from several of those brokers targeted for each year. Allen points out that the ones that take it no further often come back to the material a year or two later when the subject arises with a client – and then the issue can be addressed again, when the timing is perhaps better for both parties.

Heritage currently manages 35 fully formed captive subsidiaries of parents and 10 PCCs, within which there are about 80 cells. Allen attributes the popularity of the PCC structure to the ease of start-up: compliance and regulatory aspects are effectively already implicit in the structure of the PCC; cell-management agreements look after the relationship between the cell owner and the PCC; and overall the process is quicker and cheaper than setting up a wholly owned subsidiary.

An additional plus is that, as a first step into captive insurance, the PCC cell can, if successful, be easily translated into a fully blown captive. Clients can form their own subsidiary, and simply novate the policies from the PCC cell into the captive.

A PCC or cell is also an extremely good way for a broker to dip their toe into captive business. From a broker’s point of view, it doesn’t make much difference if it’s a cell or a captive and it’s often quicker to start up a cell for a client.

"One of the most important things is that, if it’s a captive or a cell, you want the person who is deciding to go down this road to buy into the strategy," says Allen. "The only way they really buy into the strategy is if they put capital on the line."

ICC potential

As far as incorporated cell companies (ICCs) are concerned, Heritage see potential additional benefits in these structures. Nick Heys, Heritage’s new business director, lists the advantages of ICCs as follows:

  • They offer clear ownership distinction between the ICC and the individual cells;
  • They offer quick and easy access to special purpose vehicles (SPVs);
  • They have the ability to provide intercellular transactions: one cell transacting with another as a separate legal entity;
  • There are possible combinations of cell transactions such as: short-term versus long-term business; residual value SPVs that sit alongside the asset – the SPV in one cell, the asset owned in another cell;
  • ICCs are very much more focused on a structured insurance basis as opposed to what would be considered a more traditional captive insurance/reinsurance basis.

"The basic underlying advantage, in our view, of setting up or getting a client involved in a captive or PCC arrangement is that it creates a much longer-term relationship with that client", says Allen. Additional to this – and critical in Allen’s view – is that, in setting up a captive or cell, a broker can get much closer to the senior management of their client – especially the larger ones.

"You often get the financial director sitting on the board of the captive – and very interested in the results of the venture," explains Allen. "You get very senior people, main board players, starting to take an interest in the result of this new subsidiary that they are running. The broker then has a better potential level of business from that client than he had before."

In short, by not engaging with the captive industry, brokers are potentially denying themselves the opportunity to grow and evolve the relationship with their key clients, and face the potential risk of the larger players successfully attacking their best business.

For more information about Guernsey's finance industry please visit .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions