CIC Services has seen an increasing number of technology companies replacing or supplementing commercial insurance with captive insurance, according to Randy Sadler, principal at CIC Services.
The firm explained that the current COVID-19 pandemic climate provides a perfect storm for cybercrime to happen.
CIC Services pointed out a recent FBI’s Cyber Division report, which noted the number of cyberattacks is up to 4,000 a day, which is a 400 percent increase of pre-COVID-19 numbers.
They also reflected on a report from IBM and the Ponemon Institute, which found that the average cost of a data breach has risen to $3.92 million.
They added that small businesses are not immune to cybercrime. According to data from Accenture, 43 percent of cyberattacks are aimed at small businesses and cost $200,000 on average.
However, CIC Services explained that the biggest, most detrimental loss a tech company may face is intangible, such as the loss of intellectual property (IP) in the form of copyrights, trademarks and patents. The economic losses companies face from IP theft are substantial.
Sadler explained that there are measures organisations can take such as stiffening their cybersecurity, carefully tracking and inventorying their intellectual property and limiting access to information and utilising data loss prevention software.
He continued: “Nevertheless, even with these processes in place, these threats are ever-changing and can occur unexpectedly. And although there are commercial insurance policies for cyber risk, intellectual property and business interruption insurance, these policies can be expensive, inaccessible and riddled with holes and exclusions.”
Commenting on the rise of captives, Sadler stated that captives can address losses associated with complex threats and insure any gaps in commercial policies, so they’re an ideal vehicle to protect tech companies.
“And as a form of self-insurance, when losses don’t occur, the company keeps the profits accrued in the captive insurance company—a powerful strategy,” he added.
Sadler also noted that well-managed captives can utilise tax-favoured treatment to accumulate loss reserves to provide much-needed protection. Over time, the captive can become a profit centre on its own and even provide its financial reward back to the company.
He added: “Ultimately when it comes to crafting a risk management strategy, it’s critical for tech companies to recognise that the stakes are high and these risks are ever-evolving.”
“This is not a place to cut corners. Businesses need robust strategies that combine both active and passive measures and comprehensive insurance coverage that address all facets of risk,” Sadler concluded.
Recently, Grant Maxwell, global head of alternative risk transfer at Allianz Global Corporate & Speciality (AGCS), spoke to Captive Insurance Times and explained that in response to the hardening cyber risk insurance market, existing captive owners are looking to increase the use of their captives to include additional risks while others are exploring setting up new captives.
