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More Firms Now Using Captives for Cyber Liability and Terrorism Risk Insurance

should your public entity participate in a risk sharing pool

More Firms Now Using Captives for Cyber Liability and Terrorism Risk Insurance

Captives are a risk management strategy currently experiencing growth across industries as a result of a healthy economy and subsequent growth of business sectors. As organizations, both large and small, expand across geographies, they are challenged by complexity, regulations, employee benefits and shifting business alliances. Captive insurance technology has kept pace with a growing demand, enabling captive insurers to access data across geographies and expedite delivery services.

Between 2012 and 2017, the number of captives writing cyber liability more than doubled and the number of captives providing employee benefits across geographies quadrupled. Captive insurers’ flexibility across geographies, powered by new technology and insurance software providers, has allowed growing organizations to meet the demands of employees, stakeholders and government entities. In addition, these technologies make it possible to minimize risk across parties and meet new challenges.

Increase in Complexity

Power and utility companies, logistics and transport, media, tech and life sciences industries are increasing in complexity as smaller entities merge with larger organizations and larger organizations acquire start-ups and small businesses. This complexity opens the gateway to emerging risks such as data breaches, cyber-security and terrorism risks.

Cybersecurity Measures and Regulations

In response to these threats, captive insurance agencies write cyber liability policies that go beyond the limited coverage of general liability policies. Cyber liability policies typically cover risks associated with data breaches such as recovering data and repairing damaged networks. In addition, state regulations may require that organizations inform all affected individuals and clients of the breach. These notifications can be time-consuming and costly. Cyber compromise also impacts your organization’s reputation, which is why cyber liability coverage packages will assist in restoring the identities of affected clients when necessary.

To stay competitive and build consumer confidence, firms have been adding cyber liability protection through captive insurers.

Mitigating Terrorism Risk

The Terrorism Risk Insurance Program Reauthorization Act of 2015, or TRIPRA, has helped organizations define the parameters of a certified terrorist act. For organizations with holdings in terrorism-impacted locations, this type of definition is meaningful when making claims and underwriting policies. Captive insurance technology, such as big data-powered underwriting, is capable of leveraging multiple data sources and variables to create a single, reliable source for terrorism-related risk assessment.

Captives act as supplemental insurers capable of mitigating a variety of risk factors from supply chain disruption to employee protections in hazardous locations. For organizations operating in politically tumultuous regions, the means with which financial risk and loss are mitigated involves a thorough understanding of alternative risk management. This makes it possible for similar organizations to cover the negative financial impacts of a terrorist act. When similar organizations share coverage, it is affordable regardless of extenuating circumstances.