Reinsurance News

Cyber reinsurance premium to exceed property cat in decade beyond 2030: Gallagher Re

22nd February 2022 - Author: Luke Gallin

Analysis by global reinsurance broker, Gallagher Re, finds that by 2040 the cyber market will become comparable in size to either property or casualty as the segment experiences a second wave of growth from 2023.

gallagher-re-logoGallagher Re’s cyber reinsurance team has published a new white paper, CY-FI: the Future of Cyber Reinsurance, which provides an outlook for the cyber market amid an “underwriting revolution” that is well underway.

The main prediction of the paper is that the growth path of the cyber market will see it become similar in size to either property or casualty by the year 2040.

At the same time, the white paper forecasts that if the cyber market continues to grow at its current pace, it will double in size every three years.

Growth of this magnitude, coupled with insurers strong use of reinsurance, means that cyber reinsurance premium will exceed that of property cat in the decade beyond 2030, says Gallagher Re.

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The reinsurance broker notes that currently around 50% of cyber premiums are ceded to reinsurers.

According to the report, the ongoing cyber underwriting revolution, characterised by a crunch in capacity and an “unrelenting rise in demand,” has resulted in a decoupling of premium and aggregate exposure.

This revolution, according to Gallagher Re’s dedicated cyber team, has enabled insurers and reinsurers to utilise the full range of tools available as they look to deploy capital against better quality risks, which ultimately lays the foundations for future market growth.

All of this has seen the cyber team at Gallagher Re predict a second wave of growth for the market from next year, driven by a rise in profitability from falling loss ratios, which attracts capital and bolsters confidence to support capacity growth.

The white paper claims that by the end of 2025, there will be greater clarity over cyber’s future as an “insurance heavyweight,” boosted by confidence in the ability of data to predict claims and the effective use of technology to drive a “data arms race” between re/insurance companies and Cyber Security vendors.

“We expect this convergence of technology solutions, Cyber-Security techniques, and (re)insurance to create a virtuous cycle. Investors will seek to protect their invested capital and Cyber will become the model class for product innovation and diverse distribution,” said Ian Newman, Global Head of Cyber at Gallagher Re.

“We anticipate market-shifting changes to occur as Cyber reinsurance outpaces Property CAT – with Cyber ultimately becoming the most-purchased type of cover globally by individuals, SMEs and large enterprises. For example, we predict the majority of Motor premium will become part of the Cyber market, as Motor insurance transforms into a technology warranty for owners of large fleets. Aviation and Marine will see similar shifts,” he added.

“While there are many factors that could influence the future of the Cyber market, much of what our paper explores is, we believe, a matter of not if, but when. Sci-fi has a history in predicting the future and there’s no reason why “CY-FI” won’t do the same. We’ll just have to wait 20 years to find out,” concluded Newman.

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