Greater demand for cyber insurance products combined with rising cyber prices are driving an increase in premiums written globally, Gerry Glombicki (pictured), senior director at Fitch Ratings, told Intelligent Insurer. Capacity is another key topic of conversation, particularly around people leaving cyber as the rates aren’t as attractive as people thought they were.
Yet this talk is not necessarily translating into action. “On net you’re probably seeing a small amount of people entering the market, but it’s roughly equal in terms of capital. You’re not seeing anyone pull out substantially, particularly not any of the larger players in the market. Cyber is being held on to, so it’s throwing some balance into it,” he said.
Cyber remains a relatively hard market, Glombicki said. The increases are starting to soften but they remain positive. “It’s still an increasing price but the pace of the increase isn’t as dramatic as it has been in the past.”
Cyber may be continuing its upwards price and premium growth trajectory but the challenge of getting access to quality data, especially around the evolution of risk, is an issue going forward. The problem is the unknown or identified vulnerabilities, Glombicki said, and how quickly organisations can adapt and act to defend against them.
In addition to price increases, contract terms and conditions have tightened and the process of underwriting cyber risks has evolved, he said.
“First people were asked: ‘would you like the product?’. Cyber was just thrown in as an add-on. From the add-on it went to a questionnaire as part of the process and now you’re starting to see that you need certain things that are requirements to underwrite the account.”
Clients usually need to have multifactor authentication in place before their risk will be underwritten, with employee training around cybersecurity another must-have, and board signoff is also becoming more common.
“You’re starting to see a maturity in how the risk is being underwritten but it’s going to take some time for that maturity to be set in stone because, again, the risk is constantly evolving and you have to stay on top of it.”
“Cyber is a market that could potentially grow quite a bit in size.” Gerry Glombicki
Systemic event
The market might be maturing but Glombicki was clear that one of the biggest challenges that market is yet to face is a systemic event.
“Every day in the news you can read about company X was breached, company Y was hacked, that’s going to happen over the near term. But the bigger events, what I’ll call systemic events, are going to impact all people.”
Such events include attacks on a cloud service, for example Amazon’s web service or Google cloud, or attacks on a content delivery service, which Glombicki said was “a lot tougher to price for”.
The nature of these massive events is that they affect a lot more people and one of the things underpinning insurance is that they’re independent events, he said.
“For example, with a hurricane it’s going to be all the same event at one point in time. It’s similar to cyber risk, when you have a systematic event. However, that’s very difficult to price for and it’s hard to predict when that’s going to happen.”
Such unpredictability has not had a huge impact on capacity. At September’s Rendez-Vous in Monte Carlo, several insurers and reinsurers reaffirmed their commitment to the cyber market. Glombicki said that market players definitely want to compete in this market because they value the product.
“It is a product and business line so they have to be able to meet their return hurdles on the cost of capital to compete. They’d do that by hardening prices, changing terms and conditions, better use of reinsurance, better risk management, better analytics. If they can’t do that over the long run, if they can’t solve the return hurdle on to that cost of capital, they will likely exit the market,” he said.
Glombicki said that the most recent data from Fitch for the US market showed it was operating at a slight underwriting loss when expenses are taken into account.
“It was not that much of a loss in terms of how much the re/insurance market as a whole was losing. This is a product that is likely to grow. In comparison, for the most part P&C insurance is a relatively mature market, so people aren’t growing much more than the overall economic inflation rate.
“But cyber is a market that could potentially grow quite a bit in size,” he concluded.
APCIA 2022, Fitch Ratings, Technology, Premiums, Cyber, Cyber Risk, Insurance, Reinsurance, Gerry Glombicki, North America
