Leaving Value on the Table? Captive

Owners Could Be Doing More

Our survey results suggest that risk financing maturity is on an upward trajectory, albeit still at relatively early stages.

A minority of organizations that place cyber in their captive use deterministic/stochastic modelling to support their cyber risk financing strategy, with many still reliant on management intuition or market dynamics to inform their approach.

Basis for Captive Premium

The captive rationale also supports this and does not yet demonstrate a distinct utilization, which is common in more immature risk classes.

Captive Rationale

The risk community continues to strive to understand the underlying risks facing organizations while educating network security departments of the potential value of insurance and the role a captive could play within this dynamic. Many of the organizations surveyed use the captive in a “transactional” manner and in reaction to the prevailing market conditions. More generally, this correlates with a lack of maturity in insurance purchasing patterns for cyber insurance.

Analysis of our cyber captive dataset demonstrates no distinct risk transfer purchasing trends or significant insurance markets, suggesting that the longer-term dynamics of captive use are yet to emerge.

Captive Participation Basis

Generally, the most common ways captives have been deployed involve two distinct tactics.

Use the captive to increase the attachment point of the primary market: This helps shield the market from lower value incidents that can be contained internally. It helps avoid negative market reactions while also concentrating the available risk transfer capacity on more meaningful levels for the organization, excess of the group’s risk appetite.
The captive can be used to “fill gaps” in excess layers to fulfil the layer and open up additional capacity in additional excess layers.

These approaches also enable the group to demonstrate alignment of interest, and the higher deductibles may enable more meaningful conversations with alternative primary markets. However, although effective, these approaches are based on managing an insurance market going through a maturation process.

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Analysis of our cyber captive dataset demonstrates no distinct risk transfer purchasing trends or significant insurance markets, suggesting that the longer-term dynamics of captive use are yet to emerge.

Captives Play a Meaningful Role in the Cyber Risk Conversation

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