Grasp the $50bn+ cyber opportunity by understanding the risk
If the market is to realise the size of the potential opportunity in the cyber market, it must stop looking to exclude everything and instead focus on better understanding the risk. In this way, what is now a $12 to $14 billion market in terms of gross written premium, could transform into $50 billion+ by the end of the decade.
That is the view of Mike Steel (pictured), general manager at Moody’s-owned RMS. “There remains uncertainty around how to model cyber risk,” he said. “But we think the best way to grow the market is not to exclude, but to understand. Otherwise, these risks will end up being self-insured or managed by captives, which will be an opportunity missed.”
Steel says RMS is investing heavily in the space with this goal in mind. But it is not doing it alone: in September, it unveiled details of a Cyber Industry Steering Group designed to develop industry initiatives to respond to the growth of the global cyber insurance market.
The group’s members include Munich Re and Gallagher Re, and Bitsight, said Steel. The firm said at the time of launch that achieving a greater understanding of cyber risk will help provide the reassurance and confidence required by the industry to seize growth opportunities.
Steel explained that the consortium started with a five-year roadmap at the end of which the goal would be risk models comparable with those available in the property-cat space. But with the support of the other members, this timeline could be shortened to two to three years.
“Our position is to partner where we see growth. But this has to be an industry-wide effort, and that is why so many major players have come together. We aim to get into a better place, with a better understanding of this risk.
“You are not going to grow this line through the use of exclusions, but through better understanding of the risk,” Steel said.
Another area of innovation front and centre for Steel is climate risk. Moody’s RMS has made available to its clients “climate-conditioned” versions of its main risk models, which essentially allow clients to experiment with different scenarios depending on their view of how climate change will play out. As many as 68 different views of this risk can be analysed.
In addition, Moody’s RMS offers “climate risk scores”, which allow users a view on how climate risk might affect the risk profile and value of a given asset. It has also invested heavily in models to better understand what were once called secondary perils, such as flood, hail and wildfire.
Steel stressed that RMS’s approach to climate change and climate change risk is to empower clients to make their own decisions. “We took the decision to not put our own stamp on climate change predictions; every client will have its own view. Instead, we give them the tools to make their own minds up.
“There are different views on climate change around the world, and our tools allow clients to take their own views.”
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