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AI moves into talent risk management but insurance is crucial

October 2023 by Ocorian

Growing use of artificial intelligence (AI) in talent risk management is increasing the need for cyber risk cover and underlining the role of captive insurance, Ocorian, the specialist global provider of regulatory and compliance, fund, corporate and fiduciary services, believes.

It says talent risk management is becoming a bigger issue for companies as increased turnover of employees is leading to skills gaps across many industries driving firms to embrace innovative strategies such as AI to identify workforce trends and take preventative action. But increased use of AI in businesses has the downside of increasing exposure to cyber risks and global net cyber insurance premiums which were approximately $12 billion last year are expected to triple within the next five years.

Ocorian says captive insurance and the insurance industry in general can play a key role in providing cyber liability insurance as well as supporting talent risk management strategies. Captive insurance companies, which are wholly owned subsidiaries with a license to write insurance policies for its parent entity and related entities, can provide cyber insurance at affordable prices.

Captive insurance in general provides more control and flexibility over the risks covered to companies while producing operating cost savings as there are fewer premium payments made. Capital can be invested to generate investment income instead of being used for premiums and rates are lower in reinsurance markets. Companies can also use key person insurance to support talent risk mitigation and can extend the cover to a broader range of employees rather than just directors and founders.

Sherman Taylor, Head of Capital Markets - Bermuda at Ocorian said: “AI algorithms can identify workforce trends by analysing valuable internal and external data on employee performance, behaviour traits and career ambitions, which in turn enables the organisation to take preventative action and manage its talent more effectively.

“But it has the downside of increasing exposure to cyber risks. Even the best talent management strategies are not guaranteed to succeed, and organisations may find it useful to finance their less controllable talent risks through one or more insurance options.”

Ocorian also underlines the role of employee share ownership plans as a way to support talent risk mitigation as they enable employees to have an ownership stake in their company.

Ocorian can help with end-to-end advice on how to set up a captive and develop an appropriate insurance program and optimise the day-to-day functioning and governance of the captive in line with regulations and best practices.

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