A Barbados’-eye perspective of the captive insurance market

Invest Barbados, Kirk Cyrus, Captive International, 2020

“Active risk financing using captives is inescapble given the expectations of future systemic risk events relating to climate change.”

Kirk Cyrus, Strategic Risk Solutions

In its 2020 “Global Risks Report”, the World Economic Forum (WEF) stated that the sustainable development of global economies would be impacted by key risks associated with the environment, technology, and public health.

That was at the start of 2020, when there was already discussion of the impact of climate change, extreme weather and biodiversity loss. Public finances were burdened by the high incidences of non-communicable diseases and the economic and social cost of their management.

The WEF’s “COVID Risks Outlook” published in May highlighted global recession as the biggest risk concern. It was concerned about corporate bankruptcy and structural issues in the economy related to deep unemployment caused by lost jobs, lay-offs and furloughs associated with the COVID-19 pandemic.

What is now certain is that risk management planning in the future must consider supply chain disruption, non-material damage losses and employee-related claims, as well as government and regulatory stakeholder intrusion.

The challenge in 2020 has been the maintenance of corporate brand value and the reorganisation and reinvention of businesses. There is now a need for faster broadband networks and cloud technology upgrades due to changing business models, alongside data privacy considerations from the workforce having to access networks from home. This is within the context of the IT security and business continuity teams having to (re)focus on “pandemic” planning.

The insurance landscape has therefore been one of continuing market hardening, as evidenced by increasing rates and deductibles, along with limits in coverage. Simply, the prevailing environment has created a lower appetite among traditional insurers despite a customer demand.

This is nothing more than a continuation of market adjustment starting with the 2017 Atlantic hurricane season and the 2018 wildfires in the US.

Insurability is being challenged by carriers, with increases in the cost of coverage and the contraction of re/insurance coverage within certain industries. Indeed, no business entity is immune, with the challenges deep and far-reaching.

Among Fortune 500 companies, balance sheet intangibles in the form of patents, trademarks and data represent a more than $20 trillion insurance coverage problem.

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