In the Future, 34 Percent of Captive Insurers Expect To Cover Cyber Risks

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April 30, 2019 |

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Regardless of where they are licensed, the overwhelming majority of captive insurance companies or protected cell captives (PCC) are active, according to a survey released April 29 by Aon PLC.

Across the world, 90 percent of captives and PCCs are currently active, while just 7 percent are dormant, and 3 percent will close within the next 3 years, the 2019 Aon Global Risk Management Survey reported.

In Asia Pacific, 94 percent of captives and PCCs are active, followed closely by North America, where 93 percent of captives are active.

At the other end, in Latin America, 82 percent of captives and PCCs are active, while 14 percent are dormant, and 4 percent will close in the next 3 years. In the Middle East and Africa, 86 percent of captives are active, and 14 percent are dormant.

The likelihood, though, that an organization sponsors a captive generally is directly related to its size. For example, just 9 percent of organizations with less than $1 billion in revenue have a captive or a cell in a PCC. By contrast, 75 percent of organizations with between $20 billion and $24.9 billion in revenue have a captive or a cell in a PCC, according to the survey.

The likelihood that an organization has a captive or a cell captive also varies by industry. For example, 31 percent of pharmaceutical and biotechnology companies have a captive or cell captive, followed by 27 percent of chemical companies and 26 percent of energy and healthcare firms.

At the other end of the captive spectrum, just 4 percent of hotels and hospitality firms and 5 percent of rubber, plastics, stone, and cement companies have captives or cell captives .

One reason that few hotels and firms in the hospitality sectors have captives "is probably due to the fact that most participants represent smaller companies rather than large international organizations or franchises," the survey noted.

General/third-party liability is the risk most likely to be underwritten by captives and cell captives, with 50 percent of captives used to cover those risks, while 48 percent of captives and cells cover property risks, which includes property damage and business interruption coverage.

Looking ahead, 34 percent of captive parents expect to cover cyber risks, compared to just 16 percent captives that currently do.

"Cyber risk continues to be at the forefront, and many captive owners see it as a risk to be potentially underwritten in the future, the highest percentage across all lines," the survey noted.

As to why organizations have formed captives, 64 percent cited cost efficiencies, while 51 percent said insurance premium reduction.

On the other hand, just 24 percent said they formed their captives to finance uninsurable risks, and 22 percent cited tax advantages.

The survey results are based on responses from more than 2,600 risk managers from 33 industries, representing small, medium, and large-sized organizations operating in 60 countries.

April 30, 2019