Captive Insurance Companies As A Buffer Against Extreme Risk
Insurers Cite Global Pandemic As Extreme Risk
In past articles we have noted that most businesses are under-insured, particularly when one considers the myriad of threats facing business owners in a global economy. Third party insurers struggle to offer viable and affordable insurance policies for the wide range of threats facing businesses today.
This point is further underscored by a December 12 article in CAPTIVE INSURANCE TIMES written by Daniel Jackson. Towers Watson recently conducted a large scale survey among global insurance industry executives. According to Jackson “Global insurance industry executives ranked a global pandemic, a large-scale natural catastrophe and a food/water/energy crisis as the three most important extreme risks for the insurance industry to worry about in the long term.”
Stephen Lowe, senior consultant at Towers Watson, said: “We were delighted to get such a geographically diverse and high response rate to the survey. The kinds of risks that could wipe out an insurance business do inevitably evolve over time, so we were very encouraged to see this degree of engagement from a broad sample of the industry.”
Jackson also noted that “The other top 10 extreme risks included cyber-warfare, an economic depression, a banking crisis and a default by a major sovereign borrower.” This prompted the author to note that, “The consideration of these extreme risks can be useful in helping insurers design more robust risk management processes.”
One of the great features of owning a captive insurance company is that it allows business owners to do precisely what Jackson recommends – “Design more robust risk management processes.” Captive ownership can help business owners address gaps in their third party insurance coverage. Furthermore, captive insurance policies can be tailored (or customized) to address the unique needs of the business. This ability to customize captive policies also makes it much easier to tailor coverage to address the (secondary) effects of disasters or accidents – not just the direct effects of the accident. As an example, a business with a captive insurance company could write insurance coverage for business interruption if a disaster or accident affected its customers but didn’t directly impact the business.
Modern day risk management increasingly requires flexibility and a broader umbrella of insurance coverage. Setting up and owning a captive insurance company can give business owners the additional flexibility and umbrella of protection to better face an uncertain world.
To read the entire article in Captive Insurance Times, click the link below.
Since 2005, CIC Services, LLC has been helping business owners own their own insurance company. Please contact us with any questions about improved risk management via captive insurance companies.