Global: Reinsurers could unlock the cyber insurance market
Source: Middle East Insurance Review | Nov 2021
Prices in the cyber (re)insurance market could rise sharply over 2021-2023; in some cases, doubling from current levels.
According to a report published by S&P Global Ratings, ‘Cyber risks in a new era: Reinsurers could unlock the cyber insurance market’, the pandemic accelerated digital transformation and increased systemic vulnerabilities, causing economic and insured losses from cyber to skyrocket.
S&P said primary insurers pass 35%-45% of global cyber premiums to reinsurers and rely on them for their expertise in managing potential accumulation risk and exposure to cyber risk. It also suggests that partnership between reinsurers and primary insurers could strengthen coverage and give greater balance sheet protection against frequent and high-severity losses. It could also support access to cyber-related services.
“The market would benefit from the development of a comprehensive retrocession market and the use of ILS or alternative capital to improve capacity. The market faces increasing demand and limited supply. Lack of capacity could be holding back the development of a sustainable cyber (re)insurance market,” said the report.
There is a significant demand for cyber coverage and it is expected to be one of the fastest-growing insurance markets over the next decade. “The dynamic change in claims pattern, a rise of cyber threats and huge accumulation risk creates an opportunity for larger reinsurance capacity. The number of reinsurers and insurers offering cyber coverage is rising in response. But with such a new segment, we think it is important for reinsurers to offer primary insurers support in managing the underwriting and risk management processes for cyber, as they do for natural catastrophe exposures,” the report said.
As direct insurers rely on the reinsurance market for cyber insurance, reinsurers are well-placed to enable further development of the cyber insurance market. “The global multi-line insurers usually have in-house expertise, but some midsize and regionally-focused insurers do not have the resources to boost their cyber skills. Therefore, they are more reliant on the external know-how offered by reinsurers.”
The report said reinsurers have to cope with structural challenges and systemic risks, the increase in cyber attacks and an accumulation of exposures. M