CAPTIVE INSIGHT
BIGGEST CHALLENGE
WILL BE KEEPING
AHEAD OF THE
MYRIAD OF CHANGES
INSURTECH WILL
BRING, AND ENSURING
CAPTIVES DOMICILED IN
THE CAYMAN ISLANDS
UNDERSTAND ANY NEW
RISKS THEY ARE TAKING
ON IN THIS SPACE.
as well as the potential benefits. CIMA
is also aware that private sector bodies
within the Cayman Islands have established
committees and sub-committees to look at
the opportunities and challenges within the
financial technology space.
When looking at the vulnerabilities faced by
investors and users of crypto currencies, and
the resulting implications for an insurance
program, it is important to touch on currency
exchange differences and storage. Aware
that currency volatility means that a policy
in fiat currency may become inadequate in
the event that the crypto currency for which
the policy is providing coverage fluctuates
wildly in value, CIMA acknowledges they will
need to consider the capital requirements
for a captive providing such coverage to
ensure they are adequate.
With respect to the particular enquiry made
to date relating to coverage for crypto
currency losses, all discussions are centred
round cold storage and not hot. Clearly there
will be challenges to reviewing the actuarial
studies assessing the risk inherent in
different types of storage, given the absence
of much available industry data and CIMA
notes they will need to consider this aspect of
submitted business plans and put adequate
safeguards in place accordingly.
When assessing business plans for captives
looking to write these evolving risks CIMA
will continue to employ a risk-based
approach to supervision. Prior to approving
a business plan, CIMA would need to be
satisfied that the insurer or company has a
good understanding of the risks it is writing
and it has adequate controls in place to
effectively mitigate these risks. CIMA would
expect the business plan to include details
of appropriate capital resources, human
resources and technical know-how, for
example, commensurate with the risks it is
proposed the captive will write.
To date CIMA has not received applications
from any captives proposing coverage for
more exotic niche areas of InsurTech such
as driverless vehicles. Or social engineering
fraud - although one can expect that
eventually such applications will be
made. While companies are understandably
coy about making such data public, some FBI
estimates suggest that since January 2015
over $3 billion has been lost by companies
due to the latter. To date most policies in
the traditional market do not cover these
types of loss - and courts in the US have
hitherto largely supported the insurers’
position. Clearly a need exists for adequate
insurance wherever there is a potential for
loss, allowing companies to transfer risk and
remove liabilities from their balance sheets
to allow them to grow, even in an extreme
case to avoid potential, yet completely
unpredictable and unpreventable, financial
disaster. However, should an application
be submitted to establish a captive seeking
to provide such coverage, CIMA cautions
that it would be very risky to approve any
business where the risk and exposure is
unquantifiable.
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