From: Captive International

A growing number of emerging risks are being written into captives. Four industry leaders discuss how the sector is responding—and what the future will look like.

From marijuana to cryptocurrency, organizations face a rapidly evolving range of emerging risks, and these pose significant insurance and risk management challenges. In many cases, the risks are not yet fully mapped and understood, yet they could have far-reaching consequences for any organization hit with them. That’s why many organizations are seeking to address them through their captives.

“If you rewind the clock 15 or 20 years, people entering the captives market were more likely to take a ‘dip a toe in the water’ approach when forming a captive,” says Mike Meehan, principal at Milliman. “They would typically include a single or maybe up to a few traditional lines of coverage, including workers’ compensation, general liability, auto liability, etc.

“Today, prospective owners often take a different approach. They tend to come to the market looking to form a captive with more lines of coverage. Many of the captive feasibility analyses that I am involved in consider five or 10 lines of coverage.

“In addition to the more traditional lines of coverage, these analyses will often include cyber liability, medical stop loss, as well as other lines of coverage.”

One of the hottest topics is cyber. Lance Abbott, president and chief executive officer of BevCap Management, says this is an evolving and increasingly ominous risk to all business owners.

“We are seeing more and more captives take on cyber,” he says. “This allows them to craft the terms and conditions of the policy to respond to the particular cyber risks to which they are exposed.”

Meehan agrees that cyber liability, while not necessary an emerging risk, is certainly an evolving risk. “I expect that pandemic-related risks will be a hot topic for the foreseeable future,” he adds. “I also envision that cannabis and blockchain related issues will continue to gain more attention.”

As the traditional market experienced a hardening over the past few years, many organizations turned to a captive solution to meet their risk financing needs.”

Mike Meehan, Milliman, Inc.

Abbott predicts developments on the excess auto liability front. He notes that this market has firmed up and many of the reinsurers or fronting companies have become more willing to collaborate with captive owners on increasing the auto layer due to trends in the market.

“Captives that currently have auto liability in their program are looking to increase their retentions since many umbrella markets are no longer willing to attach at a $1 million limit,” he says. “Those companies may now consider offering $2 million on the primary policy. This makes them a more favorable risk for the excess markets.”