It’s estimated that more than a third of all captives will be underwriting cyber risk in five years’ time, underpinned by accelerated premium growth for cyber risks in the global captives market, according to insurance and reinsurance broker, Aon.
A recent survey and accompanying report from Aon, discusses current trends in cyber risks across the captives marketplace, ultimately concluding that cyber is likely to become an increasingly important and valuable line of business for the sector.
According to the report, cyber risk gross written premiums (GWP) in the captive market jumped by a huge 263% in 2018 when compared with the previous year. Interestingly, while the pace of growth outweighs the annual growth rate of the cyber insurance market, the number of captives writing cyber has not increased by much year-on-year.
Aon notes that the increase in captives retaining cyber risk is low when compared with the increase in parent companies that access cyber protection from the traditional markets, which suggest a lack in the use of data and analytics to guide risk financing decisions.
The survey reveals that healthcare and energy are the two leading sectors purchasing cyber protection within a captive, followed by life sciences, food & beverage, and financial institutions.
At the same time, the report highlights a significant change in coverage being offered under cyber insurance policies, while the range in limits of cover taken out is now up to $100,000 million.
Aon states that it’s estimated than in five years time, 34% of all captives will be underwriting cyber risks. To reach this threshold, Aon states that cyber risk must be integrated in to the broader risk management frameworks, while CISOs need to leverage the captive as a strategic tool and, has also called for an increase in the availability of capacity for coverage components.
“Captives continue to play a valuable role in addressing emerging risk issues for all companies. Our survey demonstrates that a captive not only can provide access to innovative coverage and unlock additional capacity for this fast moving risk topic, but also better coordinate key internal teams in a company to improve overall capital allocation, strategic planning, and risk improvement for cyber risk,” said John English, Chief Executive Officer (CEO), Captive & Insurance Management, Aon.
Other findings from the report include the fact that 41% of the captives surveyed are incubating cyber risks; 63% have business interruption cover wording within their cyber policies; 26% of respondents have suffered a cyber loss and 29% of losses have been a full limit loss.
The report also finds that both greater control of insurance program and achieving cost efficiencies are the two main reasons captives use cyber risks.
Adam Peckman, Global Practice Leader, Cyber Solutions, Aon, added: “Driven by the digital economy, Cyber remains one of the most critical risks facing all global businesses; however, this survey found that management of cyber risk remains largely fragmented and inconsistent across corporate functions.
“It is critical that cyber risk is treated as an enterprise risk and framed within the existing risk management framework. Risk Managers can lead this change by utilising captives as a key strategic tool to demystify cyber risk through more sophisticated analysis and drive more fit-for-purpose balance sheet protection.”
