Milliman: cyber risks still suitable for captives

With nearly $7.01 billion of cyber written premium in 2022, a more stable commercial market brings into question whether captive solutions make sense for cyber risks, Milliman has claimed in a new report.

The report points out that growing evidence suggests that the commercial market for cyber insurance has begun to stabilize after a tumultuous stretch of several years and that rate increases for cyber policies have slowed and loss ratios have declined from the peak seen in 2019 and 2020. In addition, the commercial market is reporting more capacity available to write cyber insurance.

Despite this, Milliman said that it believes that cyber insurance is still a relevant coverage for the captive market. It points out that while cyber rate increases are slowing and even decreasing in some circumstances, rates are still significantly higher than they were prior to 2020.

“Double-digit average rate increases in 2021 and 2022 reached a peak of nearly 35% at their high in the fourth quarter of 2021,” said the report. “Many insureds have experienced cumulative rate increases upwards of 200% since the beginning of 2021, according to a report published in late May 2023.

“These higher rates are likely here to stay. The hardening market was a response to a realization in the actual loss exposure of cyber insurance. Based on claim data published by Coalition Inc., both the frequency and severity of claims through the first half of 2023 remain at their 2021 and 2022 levels in the US.”

In addition, Milliman said that as part of the hardening market, cyber capacity reduced significantly in 2021 and 2022, leading many cyber writers to require higher deductibles and offer less in excess coverage. According to Risk Placement Services, insurers that were willing to write $5 million cyber liability policies, in 2020, scaled back to limits of $1 million or $3 million in 2021. Companies forced to take higher deductibles or to have gaps in their excess towers could either choose to self-insure that layer or turn to their captive.

As a result, said the Milliman report, there are significant advantages to adding cyber insurance to a captive.

For more information contact Milliman.