PwC has reported that although cyber re/insurance remains a rapidly growing, fertile sector for re/insurers, there are also significant risks and downside potential to writing this business, such as limitations in historical data and uncertainties in accumulation risk.
Companies are becoming increasingly aware of potential cyber threats and associated risk mitigation and cyber security techniques, largely due to high-profile cyber-attacks over the last year, which have become increasingly sophisticated and aggressive.
The current U.S standalone cyber re/insurance market is estimated at around $2.5 – $3.5 billion annually, and, if the current climate persists, is expected to grow by another $2 billion per year over the next three years.
In a recent survey of specialist writers active in the cyber markets, PwC also found that over 75% of companies are currently transferring risk to reinsurers to manage the growth of their cyber exposures.
The cyber market has also seen an influx of new entrants due to market-wide favourable combined ultimate loss ratios, which has created additional capacity and led to a softening market, in which PwC has observed increasing overall limits.
However, PwC’s survey also found that the average respondent had access to just 7 years of data for incidents like ransomware, malware, data breach and phishing.
The quality and granularity of this data was also highly variable, and, due to the changing nature of the threat, is at risk of becoming outdated or irrelevant once carriers start using it in underwriting and modelling.
Additionally, it remains unclear whether cyber risks have been adequately priced, given the increasingly systemic and extreme nature of cyber-attacks.
Because of its potentially systemic impact, cyber related business interruption (CBI) is the scenario that companies are reportedly most concerned about.
Accordingly, PwC predicts there will be an inevitable market-turning event that will separate carriers that have sufficient risk management, underwriting processes and capital in place from those that do not.
