Analysts at S&P Global Ratings have argued that the development of stand-alone cyber insurance products would benefit both re/insurers and policyholders.
In a new report, the rating agency noted that cyber cover is often bundled into existing property or liability insurance policies, and in some cases, the policies do not explicitly include or exclude cyber cover at all.
This gives rise to silent cyber risks, where re/insurers can face losses from cyber-related claims on existing property or liability insurance policies.
Even when the inclusion of cyber cover is explicit, a lack of transparency in both the policy’s definition of cyber events and its terms and conditions creates uncertainty about the scope of the cover.
In S&P’s view, the development of stand-alone cyber insurance products would reduce the problem by clarifying the scope of the cover.
It also recommended that a stand-alone cyber line of business should be managed via a cyber center of excellence.
“This would have many advantages for insurers, chief among them preventing cyber-related claims accumulating across many different lines of business, as well as the difficulties in handling such claims,” S&P stated.
“It would also allow insurers to mitigate the risk of silent cyber, as well as take a centralized and coordinated approach to data collection and research, which is vital for accurately calculating risk-adequate premiums.”
One broad issue for the development and take-up of stand-alone cyber insurance cover is that policyholders feel they already have some cyber cover within their existing insurance policies, analysts added.
This makes it difficult for brokers and agents to sell stand-alone cyber cover, and could seem to strengthen the rationale for insurers to embed such cover in existing policies.
However, S&P believes a severe cyber event that affects several lines of business at once could pose a systemic threat to insurers if it necessitates a fire sale of assets to cover losses, or results in severe reputational damage for the industry or limited capacity to cover traditional insured risks.
“Despite the challenges, we believe that insurers have the flexibility to cautiously expand their cyber insurance, as long as they can support the growth in demand at a reasonable cost,” the rating agency concluded.
“This would benefit policyholders and enable insurers to differentiate themselves from competitors. Cyber insurance has the potential become a growth driver for the industry and boost its reputation at the same time.”