Risk managers must consider risk exposures more carefully, says JLT

Risk managers are giving greater consideration to how they will finance increasing risk exposures, such as terrorism, as socio-political events intensify, according to JLT.

Captive insurance companies can access the federal terrorism backstop for qualifying events, and risk managers may not be aware of the opportunity to utilise the benefits of a cell captive to meet terrorism risk and other exposures, JLT claimed.

Thomas Stokes, managing principal and US consulting practice leader at JLT Towner Insurance Management, said: “For example, organisations cannot create a cell captive for the sole purpose of taking advantage of the federal insurance backstop.

“But when terrorism coverage is either unavailable or exorbitantly priced, using a cell captive to assume related risk can make sense.”

Stokes added that TRIPRA (The Terrorism Risk Insurance Program Reauthorisation Act of 2015) provides a way for insurance companies to access the federal backstop, which can reimburse at least 80 percent of terrorism-related claims after meeting the deductible. He also said the backstop also calls for a 20 percent co-payment.

He concluded: “It is important, however, to follow all the steps necessary steps to ensure TRIPRA coverage. They include IRS and Treasury Department recognition of an incorporated cell as a qualified insurance company for federal backstop purposes, which we have already gained.”

A cell insurance company offers additional benefits, which according to JLT, includes generally quicker licensing and fewer expenses. Additionally, cell captives will find that commercial insurance market products that cover residual risk—the co-payment—are often an affordable way to reach a net risk of near zero percent.­­