Report Reveals Increased Captive Insurance Use for Terrorism Coverages

A recent Marsh report, titled 2018 Terrorism Risk Insurance Report, said that, while the number of incidents and casualties declined in 2017, the insurance marketplace continues to innovate and respond to the significant threat that terrorism poses to the insurance marketplace. The report reveals that, as the nature of terrorist attacks changes from specific groups attacking high-value/high-profile targets to loners or small groups unaffiliated with terrorist organizations focusing on soft targets, insurance buyers are seeking to expand coverage definitions to include active assailant events.

Among the report's findings was that, in 2017, the number of Marsh-managed captives with programs accessing the federal terrorism insurance backstop, Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), increased by 44 percent from 115 to 166. In general, captive insurance companies can offer more comprehensive coverage than the commercial market and may provide organizations with access to TRIPRA or supplement commercial coverage. Often, captives present the only available option for organizations seeking significant limits for nuclear, biological, chemical, and radioactive attacks.

Likewise, companies with existing captive insurers can typically write cyber terrorism risk in a cost-effective and uncomplicated manner to reduce their net retained risk.

The report also finds that "buyers are increasingly purchasing political violence coverage or broader political risk insurance in addition to standard terrorism insurance. Furthermore, multinational companies appear more interested in coverage for technology-driven business interruption and contingent business interruption." According to the report, customized coverage through captives helps organizations avoid common commercial insurance restrictions or exclusions related to contingent time-element losses as well.