21 July 2021Actuarial & underwriting

Pandemic exclusions driving increased demand for captives: Aon

Pandemic risk exclusions are playing a significant role in driving up demand for captive insurance programmes, according to a report by Aon, titled Reprioritizing Risk and Resilience for a Post-COVID-19 Future.

The lack of availability of coverage due to hardening market conditions is increasing interest in captives, Aon said, but exclusions specifically are playing an increasing role in driving up demand. Pandemic risk exclusions in particular, which mirror the blanket terrorism exclusions seen following 9/11, are encouraging businesses to look at captive alternatives, Aon found.

“There are several benefits to having captive control over programmes for grey swan events, not least the control over the data used to assess the risk - enabling companies to really get to grips with the risk from their unique perspective, and to have this data at their fingertips should they wish to take the risk to the commercial market in the future,” said the Aon report. “Having this data when negotiating with insurers is an advantage to ensure they get industry-leading/competitive cover for industry-leading/competitive price when compared to a company that does not hold sufficient data.”

Businesses are grappling with a problem that many had not seen coming. According to Aon’s global COVID-19 Risk Management and Insurance Survey, 82 percent of respondents across global industries did not include pandemic among the top ten risks in their organisations’ risk registers prior to COVID-19.

There was slightly more of a sense of unpreparedness in EMEA than North America, with 73 percent of respondents in EMEA reporting that they did not have a pandemic plan in place, against 69 percent of respondents in North America.

More than a third (36 percent) of EMEA respondents to the survey did not think the pandemic would accelerate a review of their ERM process, while in North America, a quarter of respondents said that they would review ERM processes.