Systemic risk calls for better data and modelling in cyber
The current trend of cyber insurance rates softening while claims surge has become unsustainable. Rate recalibration is needed to tackle this imbalance and ensure stability, says Coalition’s head of insurance Shawn Ram.
“It is an interesting environment where we’re seeing softening of rates in cyber with claims increasing, and this situation is not sustainable,” Ram explained to Intelligent Insurer.
He anticipates “some moderation” in rates in the next quarter but cautions that the change won’t be particularly significant from a pricing perspective.
Over the past decade, the cyber market has undergone a “huge evolution”, he noted. Ram identifies 2011/12 as the “year of the breach” when data breaches and the loss of confidential information were primary concerns. Subsequently, the focus shifted to social engineering, cybercrime and, later to ransomware.
“This dramatic shift in threat vectors within a 10-year period has significantly impacted how companies approach underwriting,” Ram noted.
“It got to a point where the prices were so inflated and a rush of capital came in, and many carriers who historically had no interest in cyber, increased their appetite and came back into the game,” he said.
He highlighted that systemic risk poses a significant challenge in cyber insurance, as the available data is insufficient for modelling it effectively.
Comparing it to property-catastrophic risk, Ram explained that systemic risk necessitates more detailed information, particularly in understanding the underlying technologies utilised by firms.
“We require better data to gain a deeper understanding of systemic risk,” he said.
Regarding the growing popularity of insurance-linked securities (ILS) and the increasing opportunities of recent years, Ram ties this phenomenon to the challenges posed by systemic risk.
“ILS has gained popularity and expanded opportunities in recent years, largely due to this dynamic,” he said.
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