Cyber insurance transparency key to growth

PCS has launched a new data set to help the cyber insurance sector manage risk more effectively, which is hopes will facilitate further growth of the market.

PCS Cyber RLM offers insight into the largest affirmative cyber risks in the global market. Developed with broad support from across the global cyber community, it was designed to address the most difficult challenges the sector faces, according to Tom Johansmeyer, head of PCS, a Verisk business.

“Four or five years ago, it was easier for most of the insurers in the cyber market to have a broad view,” he told StrategicRISK. “Most of the business passed through the hands of a relatively small collection of players, with the reinsurance market further concentrated. Since then, we’ve seen plenty of new cyber writers enter the market, and that makes it more difficult to get a complete view of the sector. We’ve found that, in some cases, cyber insurers and reinsurers aren’t fully aware of the impact of the market growing around them.”

“In the London market, for example, many aren’t aware of how high the cyber towers go above the layers they’re on… We hope to help cyber insurers and reinsurers better understand the cyber market landscape and thus improve their risk and capital management.” 

With an estimated 250 programs of at least $200m and another approximately 500 programs of $100–199m, a small number of companies now accounts for nearly half the industry’s global affirmative cyber premium. A handful of losses from this cohort could fundamentally change the year’s industrywide loss ratio and have pricing implications for years to come.

“For all the potential we’ve heard about the cyber insurance and reinsurance market for years, growth has stalled,” added Johansmeyer. ”Some of our market sources suggest global premium may have fallen to $5 billion. Larger programs – like those tracked in PCS Cyber RLM – have put a drag on capital a bit, which impacts the market’s ability to grow.”

”Better understanding and hedging could help free up capital to return the market to its previous trajectory. And freeing up capital is important. Insurers cede an estimated 40 percent of cyber premium to reinsurers, and reinsurers have inconsistent access to retro capacity (at best). Near-term measures to free up capital could help the market return to growth while figuring out how to retain more risk, which will be the key to real overall expansion.”