Protecting Your Company from the Threat of Cyber Risk
As the number of exposures organizations face grows in number, complexity, and severity, captives play an important role in keeping up. The number of owners using captives for cyber liability programs increased by nearly 20% in 2016, representing the fastest growing non-traditional risk in Marsh-managed captives.
It’s not surprising that we’re seeing an increase in the number of captives being used for cyber risk. Capacity remains abundant in the commercial insurance market but pricing and appetite has deteriorated for some industries, such as retail, manufacturing, and financial institutions, and gaps remain in traditional coverage due to exposures the market will not write.
A captive has the ability to provide broader coverage and leverage access to the reinsurance market while providing coverage that’s appropriate for a company’s specific risk situation and covers the gaps in traditional insurance policies. In addition, captives may provide access to higher limits and more comprehensive coverage for these growing risks.
Using a captive to cover cyber risks may offer financial benefits:
- Market pricing may be cost prohibitive and the parent company might find retaining the risk a more efficient use of capital.
- Reduced volatility of retained losses and less balance-sheet impact by segregating funds in the form of premiums to pay potential losses.
- Captures and quantifies all the loss components of a cyber loss rather than simply an aggregated gross loss estimate. This detailed claims tracking allows for each stakeholder in the organization (such as IT, legal, public relations, risk, finance, customer service, etc.) to have greater understanding of their own loss components.
- Access to reinsurance carriers for hard to place industries and offering greater capacity.