Do outside directors Influence the performance of risk-trading firms? Evidence from the United Kingdom (UK) insurance industry

We examine the characteristics of outside directors and their link with six measures of financial performance using panel data for 1999-2012 drawn from the United Kingdom's (UK) property-casualty insurance industry. We find that contrary to expectations, the proportion of outside directors on the board is unrelated to performance. Rather, board-level financial expertise has the most significant and consistent impact on insurers' performance. This reinforces the functional importance of financial expertise in the technically complex and financial information-sensitive insurance industry. The interaction term between inside and outside financial experts on the board does not lead to the incremental superior levels of financial performance, suggesting no clear professional complementarity between inside and outside financial experts. We also find that 'grey' and insurance industry-experienced outside directors enhance solvency and profit margins. However, 'busy' outside directors adversely affect financial performance, indicating that over-committed outsiders are ineffective in insurance firms. Additionally, outsiders' tenure on the board of an insurance firm is generally not linked with beneficial financial results. This hints at inertia and a deficit of relevant insurance industry knowledge amongst outside directors. We consider that the results of our research could have commercial and/or policy implications.