Anticipating how risks will develop and affect clients is essential for reinsurers, with cyber presenting a particular challenge as it continues to evolve faster than most.
Insurers looking to launch or expand their existing participation in the cyber insurance market therefore often require very different support, noted Chris Baddeley (pictured left), vice president of insurance solutions at Envelop Risk. To help close the global cyber protection gap, the market needs reinsurers to act as enablers to help it develop sustainably, he said, requiring a holistic approach to innovation with risk transfer and risk management solutions.
It's rewarding to have the opportunity to support established market players and those looking to move into the class for the first time, he said, with both looking for genuine partnerships. “We want to help insurers around the world to support the market in getting to the next level and to start hitting some of the growth projections commonly discussed around cyber.”
Envelop executive vice president Simon Welton (pictured right) highlighted the importance Envelop places on making the right – and early – investments in building out great modelling capabilities.
“Cyber is dynamic, so to really deliver the support needed for market growth, you have to develop your own understanding and way of evaluating risk,” Welton said. “As a business, we recognise that’s super important, so have developed the necessary technology, which, combined with our underwriting expertise, empowers clients to close protection gaps in the regions where they operate.”
US$24 trillion by 2027, up from close to US$8.5 trillion in 2022. With that in mind, how likely is it that the gap can be bridged? While he doesn’t anticipate it happening within his lifetime, Baddelely said he believes the right foundations are being laid today to meet that goal.
“Cyber is now a firmly established, standalone class of business in insurance,” he said. “The elements needed to be a mature class of business are in place across all parts of the value chain and that will enable the protection gap to be bridged around the world. There are still some challenges to be faced, with knowledge perhaps the biggest gap that exists when it comes to purchasing cyber insurance and reinsurance. Understanding the cyber risks that you face as a small business or as an individual is the first stage in the risk management process to buying insurance. There is still a big gap in understanding what cyber risk is.”
Envelop is ever mindful that specialty insurance is typically sold through local brokers, he said, and the same knowledge gaps impacting insureds also exist among brokers.
“Getting the knowledge and confidence needed to sell this product remains a big hurdle to educating customers about cyber insurance across all customer sizes and value segments,” he said.
That being said, Baddeley does feel that strong inroads are being made by insurers and reinsurers in addressing this issue.
To help maintain momentum further, he also emphasised the need for cyber to have a strong voice at an industry level. “As recent events in the reinsurance market have shown, in the grand scheme of things, cyber is still relatively small in terms of the importance attributed to it across the wider marketplace,” he said, adding: “It doesn’t take much for attention to be deflected onto other lines of business or other areas of concern.
“Each year there is a sense that this will be the year that cyber will take off and see the much anticipated and talked about ‘hockey stick’ growth curve. But then a big cat event happens, or there are continued challenges in casualty or other global shock events that can set things back.”
Yet despite these challenges, Baddeley says there is now a strong trajectory and momentum.
“With protection gaps starting to narrow in some areas, the market is in a better position than ever to tackle the gap globally,” he said. “While there will inevitably be challenges and things beyond the market’s control, the foundations are in place to enable cyber’s growth and close protection gaps further.”
