While it might well be true that there’s too much cyber risk out there in the world for the re/insurance industry to handle, insurers need to be willing to assume more risk to help the market grow, says Tom Johansmeyer, Head of Property Claim Services (PCS), part of Verisk.
The cyber peril continues to move further up the risk and capital supply chain alongside more modellable and better understood risks, such as the catastrophe universe.
In an increasingly interconnected and digitised world, the cyber threat is as real as ever and the potential for huge accumulations suggests that it’s a matter of when, and not if a truly major, global breach occurs, resulting in potentially substantial losses.
For insurers and reinsurers, cyber risk has fast become both a great opportunity and significant challenge. And although the cyber re/insurance market is expanding, there’s a lot more the industry could be doing.
This is the view of PCS’ Johansmeyer, who recently spoke with Reinsurance News about what needs to happen in order for the market to progress further.
“The notion that there’s too much risk for the industry to handle may be true, but that doesn’t mean insurers and reinsurers can’t take action to handle at least some of it,” said Johansmeyer. “Look at the Fortune 500. Using data from PCS Cyber RLM, we estimate that less than 40% of the Fortune 500 companies have affirmative cyber insurance of at least US$200 million. Of our US$200+ million cohort, which is around 250 companies, there’s a significant number of private companies in there.
“So, this means that more than half the Fortune 500 could presumably benefit from more cyber insurance.”
By Johansmeyer’s own admission, this is somewhat of a blunt-force analysis, but it does raise the point that there’s a lot more the market could do compared with what it does currently. And, while this may require additional capital, he doesn’t believe that this type of a discrete effort would need a public-private-partnership to be viable.
So, what can the industry do to help the market move forward? According to Johansmeyer, a good starting point would be for insurers to be willing to take on more cyber exposure.
“We’ve heard that as much as 40% of premium is ceded to reinsurers. So, insurers don’t want to hold the risk. Reinsurers are running out of capacity and have to compete with other lines of business (that may pay more and be better understood) for access to more. And the insurance-linked securities (ILS) market is looking at all this and wondering why they would assume some of this risk if nobody else seems to want to.
“To grow the cyber insurance market, the insurers will need to grow – and grow the position they hold,” he explained.
Adding: “The main question insurers need to ask right now is what they can do to understand the market better, so that they won’t need to cede so much risk.
“We believe that industrywide visibility is part of this – thus our efforts with PCS Global Cyber and PCS Cyber RLM. The market has expanded enough that even the biggest players are likely to have blind spots. The days where all the data you need is in the bordereau are long gone.”
