The need to insure cyber risk has become captive-ating

The number of cyber incidents reported by firms outside the U.S. and Europe has grown considerably over the past two years. Companies are becoming more interested in seeking the most efficient ways to protect themselves from cyber risk, especially considering new data protection regulations, like the European Union General Data Protection Regulation, which places stringent requirements on personal data.

On the supply side, insurance coverage for cyber risk is not available for all industries, and there are material gaps in coverage where available despite the fast growth of premiums and high reported profitability of cyber risk insurance carriers.

Premiums for cyber insurance are expected to continue to grow, but the market for cyber insurance is quite concentrated. Many insurers are lukewarm or hesitant to provide coverage, including in developing markets like China. Insurance offering seems to be lagging behind the ever evolving needs for cyber coverage.

Could captives be an attractive alternative for companies, supplementing and substituting for commercial and/or reinsurance?

Rather than transferring cyber risks to the traditional insurance market, a company could consider a captive as a platform to better manage risks, potentially resulting in ancillary risk management benefits across the insurance operations. Captives will face the same challenges as traditional insurers in developing well-defined insurance coverage and sound premium rates due to the constantly changing nature of cyber risks. But both coverage and premium rating become less serious considerations for captives given that they retain cash flows within their own ecosystem.

Captives have more incentives to implement procedures to improve the cyber risk management environment, both pre-loss and post-loss. Cyber risk management via a captive could more easily be advanced to board level rather than being a pure IT function. And captive owners are also more likely to make strategic investments to improve the cyber security for the long term.

In this article, Milliman’s Guanjun Jiang explains in more detail why captives could be an option for companies looking for cyber insurance options.

Non-linked and linked product regulations

In October, the Insurance Regulatory and Development Authority of India released draft non-linked and linked insurance products regulations for comments. In this Asia e-Alert, Milliman consultants highlight the key changes proposed in the draft regulations as well as the business implications for life insurers.

Milliman’s Pixel offers new features that allow home and flood insurers to review premiums and losses by peril

Milliman has announced new features for Pixel™, Milliman’s web-based, interactive premium comparison and market analysis tool for personal residential and flood insurance.

With this most recent update, Pixel Homeowners now allows users to review premiums by peril. This more granular look at pricing helps insurers make more informed decisions around competitiveness and can help drive profitable market growth. Additionally, the Pixel product update includes the ability to incorporate loss and expense data such as expected losses from catastrophe models, enabling users to analyze competitive position and profitability at the same time. Businesses are able to view not only their own data in Pixel, but also to license Milliman’s market baskets, which include competitor premiums for hundreds of thousands of policy profiles, all calibrated to represent various state markets for both flood and residential property insurance.

Pixel’s updated features provide a granular market analysis that allows insurers to simultaneously compare competitiveness and profitability. As insurtech drives competition in the market, both new and established insurers are able to make more informed decisions around pricing strategy and market growth.

“We have found the Pixel tool extremely helpful in analyzing where and how to be more competitive,” says Kevin Walton, Managing Director of Underwriting and Risk Control at People’s Trust Insurance. “Now that Pixel splits the competitor premium by peril, we can focus on the area that will have the most impact on our competitiveness. Adding loss information to the analysis will also greatly enhance the usefulness of Pixel.”

To learn more or see a video about Pixel, click here. To learn more about Milliman’s insurtech products, click here.

Smoothing pay-outs on with-profits policies

Approaches to smoothing vary significantly across the industry, and it is quite common for different smoothing strategies to be applied to different funds within the same firm. Milliman consultants Jennifer Strickland, Russell Osman, and Jennifer van der Ree recently conducted a survey of the different methodologies applied across a broad sample of UK with-profits funds.  This paper presents the results of the survey and looks at the smoothing costs that could arise under some of the most common approaches.

Home sharing creates new business line for insurers

Home-sharing companies like Airbnb, VRBO, and TripAdvisor Rentals have become popular lodging options for vacationers and business travelers. Homeowners who rent their living spaces on these websites can generate income. However, renting a home or apartment presents many risks for them too. While some home-sharing companies offer insurance, others do not. This may provide carriers an opportunity to structure unique forms of insurance to cover hosts during rental stays. In this article, Milliman’s Dana Ryan discusses the types of insurance policies home-sharing companies provide hosts and how insurance companies can benefit from this new line of business.

Severity of recent wildfires may affect dynamics of the California homeowners’ insurance market

As recovery and investigative crews continue to comb through the wreckage of California’s Camp Fire and homeowners set their sights on moving forward, public attention has turned to the insurance implications of such a destructive few years of wildfires in the state.

November’s Camp Fire in northern California has already topped the Tubbs Fire of 2017 as the most destructive wildfire in California history. And in July, the Mendocino Complex Fire burned through more land than any other wildfire in state history, at 459,123 acres.

Calendar year 2017 was an unprecedented time for wildfires in California. According to Milliman’s estimates, losses incurred by insurance companies in the 2017 wildfire season could rival the combined losses of the entire 39-year period that preceded it.

Despite the high level of wildfire destruction in the state over the past two years, it is not clear what Californians should expect in the future. Without question, though, the recent wildfire destruction has had a devastating effect on individuals and businesses across the state, and has also had a major impact on property insurers. Due to an extraordinary outbreak of major wildfires in the fourth quarter of 2017, insurers suffered wildfire losses of $12 billion in calendar year 2017—the largest amount of losses on record since the 1991 Oakland Hills Firestorm, which would have cost $2.8 billion in 2017 dollars.

If the recent pattern of California’s escalated wildfire severity persists, there could be significant implications for insurers’ willingness to adequately cover the wildfire losses in the state as well as for homeowners’ ability to find and afford coverage.

In this article, Milliman’s Cody Webb and Eric Xu examine some of the fundamentals of wildfire risk, including the effect on insurers, homeowners, and the overall implications for the property insurance market in California.