Cyber risk insurance and reinsurance continues to develop in what’s now a crucial time for the marketplace and buyers of cyber protection. And while there’s ample available, and essential reinsurance capacity to address and support the issue, JLT Re believes considering cyber as a standalone line of business could create a more robust and effective cyber re/insurance industry.
In a new report released by reinsurance broker JLT Re and JLT Specialty Limited, divisions of global brokerage JLT Group, the need to innovate and develop a more comprehensive suite of cyber re/insurance solutions has been highlighted.
The cyber re/insurance market is at a “crucial phase in its development” said JLT, with buyers looking for more effective, comprehensive, and affordable solutions in light of the growing threat of cyber attacks around the world.
The broker claims that a shift away from defining cyber as a peril to considering cyber risk as a standalone line of business, is an important transition required to develop greater resilience to cyber risk in the insurance and reinsurance marketplace.
Head of Cyber, Technology and Media E&O, JLT, Sarah Stephens, commented; “Insurance solutions for cyber risk can differ considerably from one company to the next, reflecting the view that cyber can either be considered a peril that falls within traditional P&C products or a line of coverage in its own right. But, in order to address buyers’ changing needs, we see the standalone market as best placed to facilitate innovative and comprehensive solutions for future cyber risks.
“As more premiums flow into the standalone market, carriers will be able to evaluate and price risks more accurately as good-quality claims data and sophisticated modelling tools become increasingly accessible. This, in turn, will help ensure the market is better placed to trade through future systemic losses by encouraging innovative reinsurance and insurance-linked securities (ILS) structures. Governmental support is also likely to be needed in back-stopping some of the more catastrophic loss scenarios.”
David Flandro, Global Head of Analytics, JLT Re, underlined the growing threat of cyber attacks for firms of all shapes and sizes and across all regions of the world, which in turn is increasing costs of business.
“Companies face challenges in understanding their exposures and the type of insurance cover needed as the underlying drivers of cyber risks frequently change, requiring insurers and brokers to explain and quantify these exposures as clearly as possible.
“Increased coordination and collaboration between key markets will be crucial in meeting evolving demands and unlocking the huge potential associated with cyber for the benefit of companies and carriers alike,” explained Flandro.
By nature cyber risks are extremely complex, costly, and potentially far-reaching, underlining the need for sufficient reinsurance capacity to assist the primary marketplace with the development of innovative cyber risk solutions.
This was highlighted by Chris Bennett, Partner, London Market & International Non Marine, Cyber Treaty, JLT Re; “There is sufficient reinsurance capacity for the current cyber insurance market and increased reinsurer appetite for cyber risk bodes well for long-term growth prospects. New approaches have emerged in recent years as competition between reinsurance companies has stiffened, making non-proportional structures such as excess-of-loss, stop-loss and aggregate covers as commonplace today as the more traditional quota share arrangements.”
JLT explained that although the cyber re/insurance market has matured and expanded since the turn of the century, the market must now respond to the changing dynamics of cyber attacks, underlined by the increased frequency of data breaches over the last five years, highlighted by the chart below, provided by JLT.
“A more robust cyber market, with comprehensive, standalone policies at its core, would also help eliminate the risk of silent exposures and, ultimately, make the market more resilient to future catastrophic cyber losses. Given the strong likelihood of a major cyber event in future, the market needs to prevent a situation where (re)insurance buyers are faced with a dearth of capacity as was the case for terror cover in the aftermath of the 9/11 attacks.
“Businesses and (re)insurers that react quickly will gain first-mover advantages in what could develop to be a very different cyber market. JLT is ideally placed to support our clients through this period of change and we look forward to working on their behalf to secure comprehensive and affordable products designed to address today’s complex cyber risk environment,” continued Stephens.
The rise of technology clearly has its benefits for the insurance and reinsurance markets of the world, but increased interconnectedness and the continued transition to a truly digital world suggests malicious actors will increasingly look to exploit cloud computing, the Internet of Things, machines, connected devices and alike, explained JLT.
“Market participants have begun to explore how catastrophic cyber risks such as systemic cloud service provider failures or targeted cyber attacks on power grids could impact businesses and risk carriers. These efforts have highlighted the real potential for multi-billion dollar (re)insured pay-outs. Products designed to mitigate such systemic cyber risk accumulations are less readily available, but considerable progress can be achieved by drawing on the expertise that exists in the standalone cyber market,” said Flandro.
Considering cyber as a standalone line of business rather than a peril, according to JLT, will provide buyers of protection with a more comprehensive, certain, and stable market in a very challenging, complex, and expanding risk area.
