In a recent interview with Reinsurance News, Ari Chatterjee from Envelop Risk discussed how the cyber re/insurance market has changed in recent years and why demand for protection is projected to rise.
“The development of the cyber reinsurance market actually sped up quite a lot in the recent past and one of the major reasons for that is that we’ve seen the primary markets expand due to the pandemic,” said Chatterjee.
Through 2000 to 2020, he explained, the take up of e-commerce was only 16%. However, when the lockdowns were enforced, in just one quarter it went from 16% to 27%, and is now likely much higher than that.
The result of a significant rise in the use of technology and digitisation in a small amount of time, is a level of disruption so large the supply side of the market is unprepared.
“So, we believe that there will be a lot more demand going forward and the current insurance market is not equipped to meet that demand.
“Definitely the demand for reinsurance and demand for retrocession capacity is also increasing. The excess of loss market has increased more than in the past, but not to the extent that it can keep up with the supply.
“So, for sure there’s still a lot of work that needs to be done in that market and a lot of market gaps that need to be filled,” he continued.
While demand is certainly growing, Chatterjee noted that there’s still an imbalance as not that many markets specialise in cyber reinsurance, especially when compared with other property and casualty markets.
“So, that’s great for the incumbents but not so great when you’re a client and when you’re looking to purchase cover.”
Since Chatterjee joined Envelop Risk as the firm’s Chief Underwriting Officer (CUO), some parts of the market, notably data quality, have evolved more so than others, he explained.
“The data quality in the past for cyber insurance was really questionable. Nowadays, it seems the data is becoming more prevalent and the reinsurers have started asking for it. So, that’s a big improvement from what it was a few years back. And, that’s very important because without data you can’t build technology and without data you can’t quantify the risk. And, you can’t structure and price deals to the extent possible.”
Envelop Risk is a provider of cyber risk underwriting to insurers and reinsurers, and partners with cyber security companies to deliver bespoke cyber solutions. The company leverages advanced technologies such as artificial intelligence (AI) and advanced analytics to address the risk.
According to Chatterjee, the reason the firm went down the AI and advanced analytics path is because cyber is a sentient risk which morphs itself.
“So, you need an intelligence system which picks up the trends. The beauty of AI is that we are not only pulling data from the insurance market but we are also pulling data from lots of other sources like social media, like the attack surface area scans, we were looking at trends in the attacker behaviour, the dark web data.
“And, we have one of the largest datasets in the industry at this point. When it comes to cyber insurance, we see more than 90% of the market at this point in time. Ultimately, we do believe there’s a lot of potential to grow in cyber reinsurance,” he concluded.
