In CyberCube’s 2023 cyber predictions report, the firm’s CEO Pascal Millaire has suggested that the reinsurance value chain will work together with ILS fund managers to bring new cyber reinsurance capacity to the market.
Millaire stated that cyber insurance has the potential to become one of the largest lines in the Property & Casualty (P&C) insurance industry in the decades to come; though this will only occur if there is a deep partnership across the value chain with a cross-section of industry participants, he explained.
“The insurance industry will work together in many different ways to help power the evolution of the cyber insurance market toward a more mature level, and deliver better value for the end customer,” he said.
“In the coming year, underwriters and brokers will come under greater pressure to concentrate on value-added tasks, rather than spend their time on manual data entry or low-value screening.
“The insurance community will also strengthen its ties with alternative capital providers to facilitate the growth of the ILS market.”
Brittany Baker, VP of Solutions Consulting at CyberCube added, “Cyber risk as a new asset class for the ILS market has been a topic for discussion for several years. The current state of the insurance market has set the stage for real traction in cyber ILS in 2023.
“While there have been a few private cyber ILS transactions in the past, the industry is still waiting for the first 144a cat bond.
“2023 is ripe for this to occur due to more sophisticated modelling, the development of industry exposure databases, and an increased understanding of cyber risk across the necessary stakeholders,” she said.
However, Baker also noted that for the cyber risk ILS market to take off, the first 144a cat bond will need to have certain characteristics.
“It must be simple and repeatable,” she said, “If it’s too complex or niche, then the industry will still be left waiting. It will need to clearly define the covered perils and their event definitions – if other investors still see vague definitions or all perils, they will remain on the sideline.
“Modelling and reporting agents have to prove they are up to the task – some may have experience in the nat cat world but others will be new to the game and will need to prove their value to the financial markets.”
Elsewhere in the report, some of CyberCube’s other senior operators also highlighted how cyber offerings will continue to mature as the insurance market transitions from P&C to Property, Casualty & Cyber.
The predictions ranged from anticipation for the underwriting cycle to the utilisation of AI, along with the aforementioned role of regulation and partnerships in the development of the cyber insurance market.
Meanwhile, Admiral (ret.) Michael S. Rogers, former Director of the NSA and Commander of US Cyber Command who is on CyberCube’s board of directors, called on insurers to focus on how digitisation can create supply chain issues in 2023.
He said, “Our economic models and social structures are increasingly built around this idea of instantaneous connectivity that is never disrupted, which gives us bandwidth, connectivity, and stability.
“What will it mean if we continue to build this digitized world and yet its security and its capacity aren’t always there?”
