In a recent report, S&P Global Ratings says the demand for cyber coverage has increased significantly since before COVID-19 and that a stronger partnership between insurers and reinsurers could help strengthen coverage, give greater balance sheet protection against frequent, high-severity losses
Analysts estimate that primary insurers pass 35%-45% of global cyber premium to reinsurers and rely on them for their expertise in managing potential accumulation risk and exposure to cyber risk.
Reinsurers’ experience in underwriting and modelling could help to build up the market.
In S&P’s view, if cyber insurance is to meet the needs of customers in the future, it is more important than ever that the industry focus on risk differentiation, strong underwriting, and assistance services.
“The trend toward digitalization will inevitably lead to a higher likelihood of cyber incidents. Prices in the cyber re/insurance market could therefore rise sharply over 2021-2023, even doubling in some cases,” said S&P Global Ratings credit analyst Manuel Adam.
For primary insurers, the support of their reinsurers is seen as having become critical for their ability to manage cyber risk efficiently, strengthen their cyber risk resilience, perform cyber risk assessments, conduct a cyber defence strategy, and continuously monitor for upcoming cyber vulnerabilities.
However, analysts note how the cyber reinsurance market is still young, compared with the traditional reinsurance lines. As it establishes itself, S&P says it must overcome the issue of its limited loss experience and data history.
The reinsurance industry has been further improving its dataset by collecting information based on the coverage it provides to the primary insurance market. This helps it enhance its value proposition. Therefore, we expect reinsurers to play a major role in cyber risk management and in providing adequately priced protection.