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In 2017, More Captives Were Covering Terrorism-Related Risks

The global insurance and risk management brokerage Marsh just recently released its 2018 Terrorism Risk Insurance Report. The report outlines terror attacks in the past year and how they have affected the terrorism insurance sector in areas such as purchasing trends, pricing trends, and how the market has adapted to fit the global community’s needs in light of the evolving risk landscape.

These are just a few of the report’s key findings:

  • The number of terror incidents and casualties declined in 2017.
  • There have been increases in attacks by “lone wolves” and small groups against soft targets, cyber-related attacks, and attacks involving vehicles.
  • Education entities, health care organizations, financial institutions, and real estate companies had the highest rates of terrorism insurance take-up by industry in 2017.
  • In response to the changes in attack methods, terrorism insurance buyers wish to broaden the definition of “terrorism” in insurance coverage to include more attacks such as active assailant events.
  • Many insurers are developing products offering first- and third-party business interruption coverage that does not require a direct property damage trigger for businesses who suffer lost income and revenue from attacks.
  • As a result of natural catastrophe losses in 2017, terrorism insurance pricing could increase along with global insurance costs.

In addition, the report found that the number of captive insurers who insure terrorism-related risks increased in 2017. Specifically, in 2017, 166 Marsh-managed captives were actively underwriting one or more insurance programmes with access to the Terrorism Risk Insurance Programme Reauthorisation Act of 2015 (TRIPRA), compared to 115 captives in 2016 (a 44 percent increase).

The report continued to note that insurance captives can be a more cost-effective form of terrorism insurance than commercial insurers, and in some cases can be the only feasible solution. Captives are the viable option in cases involving significant limits for nuclear, biological, chemical and radioactive (NBCR) coverage, as NBCR coverage is not widely available in the commercial market. The reason for this is because there is not a TRIPRA mandate for the coverage, but captives are able to offer the coverage along with TRIPRA’s reinsurance protection.

According to Tarique Negeer, Marsh’s terrorism placement advisory leader, “By using a captive to access TRIPRA coverage or to supplement coverage purchased from commercial insurers, organizations can cost-effectively manage their net retained terrorism risk […] Businesses often conclude that using a captive to write cyber terrorism risk is a cost-effective and relatively easy way to reduce net retained risk, especially for companies that already own captives.”

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (317) 575-4440.

Sources: Marsh, Captive Insurance Times