The still emerging cyber risk insurance and reinsurance market is not likely to prove the panacea that some hope it will, according to Willis Re International Chairman James Vickers.
Vickers explained in a recent interview that while cyber risk is increasing rapidly around the globe, it is not yet clear where or how its future lies within the re/insurance market.
“Whilst it is correct that cyber is one of the key growing risks to modern commerce and ways of living, it is not clear whether it will continue to develop as a standalone class of business, or be subsumed into existing classes,” Vickers said.
How the industry treats cyber risk exposures is only one piece of the puzzle as well.
As an emerging class of business and a rapidly evolving risk exposure, the future of cyber in re/insurance also relies on how it is treated politically and there are ramifications for the future development of cyber as a reinsurance class.
Vickers explained, “The other imponderable is the potential role of government, particularly in managing the tail risks associated with cyber. Both challenges make the long-term prospects and viability of cyber as a standalone class unclear at present.”
As a result, Vickers believes, “Cyber is unlikely to be the panacea that some predict for the reinsurance industry. “
“Even if cyber does develop as a standalone class, another consideration is the potential market premium overall,” Vickers continued.
Musing, “Will it remain a speciality line of business with premium volumes similar to D&O and PI lines, or could it grow to match property premium volumes?
“At the time of writing it seems likely that cyber, even as a standalone speciality, will generate premium volumes in line with other successful speciality classes.
“Whilst not insignificant, this could not be regarded as a panacea for the market.”
On the potential for reinsurance in other high-tech areas of risk, such as biotechnology or genetics, Vickers said such innovation could lead to new classes of business emerging in time.
“Any high-tech advance which introduces a new element of human-error-related risk creates the potential for new product lines,” he said. “For example, it is unlikely that the algorithms in a line of code could be insured (other than for consequential physical loss), but an element of human-related uncertainty may lead to errors in the coding is potentially insurable.
“Genetics are unlikely to be insurable in isolation, but insights into genetics may help to generate groupings of individuals with similar risk profiles which could be addressed by new insurance products. Similarly, errors in genetics-related technological processes could be insurable.”
So while cyber as a class of business may not be the panacea reinsurance was looking for, it alongside other high-tech developments all have the potential to stimulate the emergence of new classes of risk and as a result provide the industry opportunities to provide cover for them.
