In an Interview with Reinsurance News, Kyle Bryant, Chief Underwriting Officer at cyber risk solutions firm, Resilience, discussed the implications of a lack of reinsurance appetite for cyber risk, alongside how the firm is handling the current challenges in the market.
When answering a question regarding the challenges that a lack of reinsurance appetite for cyber risk creates, Bryant said, “I think the approaches by reinsurers have been somewhat inconsistent over the past few years.
“What’s happened most recently is a bit of a flight to quality. Those cedents with proven experience in managing loss ratios through a difficult time in the market are now seeing the benefit of a return of capital.”
Bryant also mentioned the observability of structural change, referencing the announcement that specialist re/insurer Beazley recently sponsored a ground-breaking cyber catastrophe bond transaction, designed to cover remote probability catastrophic and systemic cyber events.
Bryant described it as “super exciting” and added that 2023 is shaping up to be a good year for the market, noting that on an insurance basis, there will be better pricing and more strict terms and conditions, placing the market on firmer ground and stabilising reinsurance providers.
“Now, there could always be more, and that struggle for capital is going to be something that persists until such time we have some certainty or confidence around systemic aggregation,” Bryant continued.
“But I’ll be honest with you, I am maybe one of the few that are extremely optimistic about where we are on that journey.”
Bryant suggested that insurers don’t receive enough credit for how much progress has been made over the past five years in the cyber re/insurance space.
He said, “Moving from what was a market share model, the simplest model addressing aggregation concerns, to the now much more informed models and informed scenarios based on enhanced information we’re getting both from the adoption technology on the insurance side, as well as through much more engaged insureds providing information all the way through the ecosystem.
“I think it’s only going to improve, and the likelihood is that the model scenarios are going to reduce, and we’re going to see that reinsurance capital grows over the next two or three years.”
When asked how continued price rises in the cyber market will affect sector growth, Bryant stated that he believes that the price processing rate is relative to the exposure.
He added, “What we’re seeing now in a sort of second phase of a dislocated market, is more emphasis on coverage rather than price. Price is perhaps 300% over where it was a few years ago on a primary basis, and coverage has been significantly reduced.
“There are policies with sub-limits and new language regarding some of the largest loss-causing scenarios. I believe that an up-stabilised pricing market is a really good thing and provided coverage stabilises to a point that doesn’t erode the value.”
Bryant then cited various studies that show 95 to 98% of all cyber claims are covered, noting, “You could say that the product has proven itself out.
“I’m quite proud of the ability of the insurance market to survive what was a three-year-long struggle with persistent ransomware claims and to do so paying out a lot of those claims. We should be proud of insurance when it does what it says on the tin, standing by our promise and paying out losses is what we’re here for as underwriters.
“I do believe that with an enhanced value proposition, particularly amongst those new entrants and those incumbents that are adopting more innovative technologies, is going to drive value that is a different point in the relationship for clients, so somewhat of an advanced value over just a financial transaction.”
Giving an example of this, Bryant highlighted how it’s rare to find any current insurer that’s not doing some sort of risk advisory, threat alert notifications, or active monitoring.
Bryant continued, “Then you have some even further enhanced propositions that create deeper, more intimate relationships with clients, where you’re creating cyber action plans and developing company’s positions against the threat environment, incentivizing that through dynamic insurance.”
Closing this topic, he suggested that an improved value proposition, along with a stabilised pricing environment, is going to be enough to bring new buyers back to the market where they may have had trouble getting coverage in the past few years.
Bryant explained how firms like Resilience are navigating some of the current challenges in the cyber market. “One of the main ways is with reinsurance. Our approach and our results have proven that flight quality is happening, and if you can prove out a stabilised impact on your loss ratio that reinsurers can rely on, you’re going to get a reasonable response back in the market.”
He added, “Our journey with our clients is all about meeting them where they are, with whatever technologies and security they have, to address how an attacker might look at their company. We give them the tools they need to analyse their exposure and the residual risk that’s within their appetite, to determine the best outcome for insurance at the time they’re looking to buy.
“We partner that with a forward-acting incident response proposition that addresses some of those immediate needs when a vulnerability or a suspected incident may arise.
“With those two things together, you’re going to get an improved loss ratio, you’re going to get an insured that is more consistently prepared, no matter what comes across their desk. That Resilience approach is everything to us.”
Bryant suggested that re/insurance also becomes the beneficiary of the services that Resilience performs, as they receive better information that feeds better aggregation models for its more informed scenarios, bringing predictability to an otherwise volatile line of business.