In cyber insurance, Time Retention and Franchise Retention are mechanisms that determine when and how an insured party becomes eligible to claim coverage for a loss. Here's the distinction:
- Definition: This is a waiting period after the occurrence of a cyber event during which losses are not covered. Only losses sustained after this period can be claimed.
- Purpose: Time Retention is used to filter out minor or short-duration events, like temporary service interruptions, that may resolve quickly without significant financial impact.
- Example: A cyber insurance policy with a Time Retention of 12 hours will not cover losses incurred during the first 12 hours after a cyberattack or system outage.
- Definition: This is a threshold mechanism where the insurer covers the entire loss once the total loss exceeds a specified amount. If the loss is below this threshold, the insurer covers nothing.
- Purpose: Franchise Retention ensures that only significant losses are claimed while smaller ones are borne by the insured.
- Example: If a policy has a Franchise Retention of $10,000 and the insured suffers a loss of $12,000, the insurer covers the entire $12,000. However, if the loss is only $9,000, the insurer pays nothing.
Both mechanisms aim to manage claim frequency and ensure that insurers are not overwhelmed with minor claims, but they address this in fundamentally different ways.
