Specialist reinsurance broker, Capsicum Re, said in a report on cyber risk perils, that the re/insurance industry is facing a growing problem of cyber perils being neither explicitly excluded or implicitly included in insurance policies – a problem that leaves both insurers and insureds in a vulnerable position.
The fast-developing cyber insurance market is being shaped by four main factors, the broker said, including increasing regulatory pressure and frequency of cyber attacks, lack of uniform implementation of cyber exclusions, and possible changes in reinsurer risk appetite for cyber, after the recent severe natural catastrophe losses.
The report suggests that these developments could bring about an improvement in underwriters’ understanding of cyber risks, and thus lead to a change in underwriting expertise, “a trend that may accelerate if cyber underwriting transitions to specialists under stand-alone policies.”
However, there’s also a chance the current underwriting trends will remain unchanged, failing to develop at a rate to match the shifting macro cyber risk environment, and leaving the uncertainties and unquantified exposures to increase to dangerous levels.
Ian Newman, global head of cyber at Capsicum Re, commented; “in the face of increasing regulatory pressure, frequency of large cyber-attacks, and a potential macro shift in market dynamics, we have put together this important market report to highlight the growing threat of non-affirmative cyber.
“It has created exposures that our industry must address in a meaningful way, and I am confident that the ingenuity and expertise does exist to create effective (re)insurance solutions – at Capsicum Re, we have already started. I encourage those who would like to contribute to delivering comprehensive solutions to read our report.”
Capsicum Re added that reinsurers are responding with both non-affirmative solutions, such as Capsicum Re’s own Cyclone net retention product, and affirmative solutions that include stop-loss policies.