19 June 2017Analysis

Marsh sees increased appetite for EB and cyber captives

Captives are continuing to demonstrate their value in the management and retention of risk, as they venture out from covering mainstay risks to the more non-traditional.

This is according to Roberty Geraghty, business development manager for EMEA and Asia Pacific at Marsh Captive Solutions, who spoke to Captive International at the Airmic Conference 2017, a risk management conference in Birmingham, UK.

Geraghty said that captives are “well placed” to adapt to not only to some of the emerging risks such as cyber, terrorism and political risk, but also the predictability of certain risks, such as employee benefits (EB).

“We are seeing companies utilise captives a lot more,” said Geraghty. “They're no longer just doing simple property and casualty risk, they're not property and casualty with the other lines of cyber, potential supply chain, political risk, employee benefit risk."

The amount of Marsh-managed captives that covered cyber increased 19 percent in 2016, according to the Marsh 2017 Captive Landscape Report. Employee benefit captives also increased by 18 percent in 2016.

“The beauty of the captives is that it’s flexible,” Geraghty said. “Cyber we're looking at filling a gap there, in terms of policies – being able to cover things that may be excluded by the market."

“Anything that's legally allowed to be insured can be insured through a captive. A captive can be a 'first base' for a lot of these unknown risks. But if you put a cyber policy in a captive you have to understand the cyber risk to start with. You have to understand your appetite to take it, what are the trigger points of the policy, and what you will take in the captive.”

When a company looks to set up a captive, Geraghty says they should follow six principal considerations: costs, cover, control, compliance, commercial, and capacity.

The cost element is being able to reduce the total cost of risk. Geraghty continued: “This is company's own risk, they understand it better than the market does. They can try and manage it as best they can and they can retain it. So if the money goes to your captive as a potential saving if you don't have claims and you're potentially improving your risk management. If the money goes to the market and you don't have a claim, it’s gone.”

The commercial aspect is the potential to offer third party insurance through the captive, which Geraghty said has become more prevalent in the captive landscape in recent years.

Around $110 billion dollars of shareholders’ funds are sitting in the almost 1,250 Marsh-managed captives, which gives companies more flexibility with their risk.

He explained: “And what companies are looking to do with that is - some of them are looking to retain more risk. So maybe taking on a higher risk with a higher limit within the captive. Also taking on new lines of business or somewhere actually looking at offering third party insurance, and using that as a revenue generator.”