More Multinationals Using Captive Insurers for Cyber and Benefits Risks
As organisations’ understanding of risk matures, more multinational companies are using captives in areas beyond traditional property and casualty risks. In 2016, for example, Marsh again saw double-digit growth in captive use for employee benefits and cyber liability.
The number of Marsh-managed captives reinsuring multinational employee benefit risks increased by 18% in 2016, compared with 2015. That growth was in large measure due to companies’ need to create efficiencies in benefits, as they face a triple threat from:
- Medical insurance cost inflation, running at nearly 10% globally for three years.
- An aging workforce.
- A shift in responsibility for providing benefits from governments to corporations.
The cumulative costs to insure employee benefit risks often exceed those of global property and casualty insurance, yet the financing and governance of benefits is far less sophisticated. We expect to see continued growth in the number of captives writing benefits over the next three to five years as service support follows a similar structure to global property and casualty programmes, which are centrally controlled with consistent and transparent governance.
The top industries in which organisations are using captives to write multinational pool benefits are communications, media, and technology; financial institutions; mining, metals, and minerals; and retail/wholesale, food and beverage. Many recent employee benefit captive implementations have been carried out by European multinationals, reflecting, in part, increased sophistication among European captives in response to Solvency II.
However, no one region, industry, or domicile leads the global charge in captive use for employee benefits. The common thread is an appetite and means to drive operational transformation.
We also saw an increase in year-on-year growth in the number of organisations using captives to write coverage for cyber liability. Marsh-managed captives using cyber liability programmes increased by nearly 19% in 2016; since 2012, cyber liability programmes in captives have grown by 210%.
The top industries in which captives are writing cyber liability are communications, media, and technology; financial institutions; real estate/hospitality and gaming; retail/wholesale, food and beverage; and transportation.
As with benefits, we expect to see continued growth in captive use for cyber liability. This is driven in part by companies that are already strong captive users, and by those that may have difficulty insuring their professional liability risks.
The potential advantages to using a captive for cyber liability include accessing reinsurance for CAT limits, filling gaps in standard cyber policy language, securing coverage for emerging and unique cyber risks, and consolidating cyber programmes across operating companies.
Captives at the Core
As captives address a growing range of risks, they help clients break down operational silos between risk management, human resources, and business development. Their broadening use is part of a trend that sees companies place captives at the core of risk management strategy.
For more information, read Captives at the Core: The Foundation of a Risk Financing Strategy.