Captives: bridging cybersecurity gaps

In the face of soaring rate hikes and other cyber-related challenges, captives present a compelling solution for businesses grappling with the evolving cybersecurity landscape, agreed a panel at the Vermont Captive Insurance Association (VCIA) annual conference.

That was one of the conclusions of a panel discussion on cyber trends, featuring Kim Guerriero, Principal and Consulting Actuary at Milliman, Chris Mee, Senior Vice President at Aon, and Mike Lubben, President of Pinnacle Commercial Insurance Company, which examined the current state of the cyber insurance market.

Guerriero highlighted that while the US witnessed a temporary dip in the in-house policy count for cyber insurance in 2021, numbers rebounded in 2022, accompanied by significant growth in direct written premiums over the past five years and substantial rate increases in 2021-2022. Although the rate of cyber claims moderated in 2022 after pronounced increases in 2021, rate escalation persists.

Mee noted a growing interest in captives as a means to underwrite cyber risk. This trend is expected to amplify in 2023, enabling businesses to address gaps in excess layers and establish policy language for primary coverage. The 'rent a captive' approach emerges as a potential solution for some entities.

However, Mee cautioned that businesses considering captives must carefully assess the pros and cons. While self-insurance can yield cost relief and captives offer flexibility, companies must be comfortable assuming the financial burden of potentially high-value claims.

Lubben emphasised that collaborative partnerships are essential to integrating cyber into captives, necessitating coordination between brokers, actuaries, captive managers, captive boards, and cyber security teams.

Highlighting the dynamic nature of cyber risk, Guerriero underscored the ever-changing landscape, requiring a high level of underwriting expertise and judgement. Cyber pricing hinges on an array of variables, encompassing management quality, company location, and other nuanced factors.