This column was provided by the Lloyd’s Market Association (LMA). Andrew Maher (pictured left), head of cyber and technology, London, AXIS, and Michael Shen (pictured right), head of cyber & technology, London Market, Canopius are members of the LMA’s Cyber Business Panel.
The London insurance market has always been a critical player in safeguarding businesses against cyber risks. The Lloyd's market in particular has been at the forefront of cyber innovation.
Cyber insurance is fast evolving because of our rapidly changing use of technology. In the late 1990s, the early days of the cyber market, Y2K risk was a big initial driver to develop cover. At that time, policies were primarily focused on covering privacy breaches, such as lost laptops. However, as the threat landscape evolved (and, in response, privacy regulations proliferated), so did the nature and breadth of cover, until it has become a unique service-led offering unlike any other cover in the market that continues to evolve rapidly today.
There are a range of converging factors that particularly support innovation in cyber underwriting within the London market.
Lloyd's has introduced several initiatives to support innovative underwriting across classes including the Innovation ICX class code. This has incentivised syndicates to provide capacity to innovative cohorts, enhancing the overall market's ability to respond to emerging threats.
The Lloyd’s Lab has brought insurtech companies to the table alongside insurers and brokers focused on innovation. This collaborative approach has led to significant capital being raised and numerous innovative solutions being developed that have elevated the efficiency, reach, and choice of solutions available in the market.
Out in the main Underwriting Room, leaders in the Lloyd’s market have built teams that are not just made up of underwriters but also specialised claims and incident management teams with access to forensic, extortion and negotiation specialists, as well as proactive response teams who share threat intelligence with underwriters and clients to help mitigate risk and strengthen cyber resilience.
Finally, the more sophisticated clients themselves often identify cyber protection gaps. When such gaps are identified, brokers can bring them to the market where among the hundreds of underwriters working for 77 cyber risk syndicates, they can develop a solution by sharing the risks on any new type of policy. The culture and structure of the subscription market enables this group of cyber syndicates alongside brokers at Lloyd’s to regularly bring products to market that can respond to and manage emerging cyber risks.
Insurers now have access to vast amounts of data, both from internal sources and external vendors. This data can be used to identify opportunities to innovate around products and types of cover.
For example, the use of parametric solutions has gained traction in recent years. These solutions provide predefined payouts based on specific triggers, which can reduce the time involved in settling claims and aim to simplify the claims process for clients.
Additionally, insurers are leveraging technology in support of better risk management. Many now offer apps that send push notifications to clients, alerting them to potential vulnerabilities and providing guidance on how to address them. This real-time support can be a game-changer by helping clients stay ahead of threats.
Looking ahead, a potential development is the bifurcation of the market into primary and catastrophe segments, which has the potential to allow for more targeted coverage and attract additional investment, helping the market expand and evolve.
Another area of growth is the integration of cyber insurance with other lines of business, which we are already seeing happening within the market, notably to address cyber risk within the marine industry. As cyber risks become more pervasive, they intersect with other areas of risk such as property and marine insurance and this convergence is creating opportunities for new products.
As an example, the rise of autonomous vehicles and other technological advancements are fundamentally going to change the nature of motor risk. The frequency of car accidents should theoretically reduce, however, severity may increase as a consequence of a systemic failure of autonomous driving systems. Motor underwriters will need to understand the risks and possible scale of technology outages to create new types of policy for driverless cars.
AI is another example of an emerging risk that will bridge cyber and other traditional markets, and one that the insurance industry is focused on understanding how to harness the opportunities it brings while managing the challenges. Legislation also drives innovation in this area. The new EU AI Act will come into force at the end of 2024, and at present there is a gap in the market to cover company breaches of the Act that are not privacy related. Underwriters and brokers are looking to fill the gap and work out how to price and shape a policy around that soon-to-arise risk.
As managing tangible and intangible risk becomes increasingly intertwined, cyber underwriting continues to adapt to ensure coverages meet the evolving landscape. In addition, Lloyd’s has introduced a separate risk code for physical cyber risks —physical damage to, for example, manufacturing or utility plants caused by malware or hackers.
Elsewhere, D&O and cyber underwriters need to join forces to understand how companies, directors, and officers are approaching cyber security: Are they buying a cyber insurance policy and what is the extent of the coverage? Are they training employees in cyber security? Is cyber security and awareness embedded into an organisational culture?
Another area that remains relatively untapped is personal lines where availability and take-up of cyber cover among consumers remains low. Individuals may want to benefit from policies that protect them against online sales fraud or help them recover from defamatory content being posted online.
Cyber is a peril that today affects all lines of business and is not just about keeping up with the latest threats but staying ahead of them. The Lloyd's market and its clients need to maintain a culture of continuous improvement and collaboration to address evolving cyber risk and other emerging risks.
By leveraging data, technology and innovative solutions supported by an experienced insurance and cyber security ecosystem, insurers in the London market can provide clients with the protection they need to navigate the complex world of cyber risks.
Disclaimer
This article is for general information purposes only. The authors make no representation or warranty in relation to the accuracy or completeness of the information contained in this article. The authors shall have no obligation to update this article or revise the information contained herein as a result of new information, research or future events.
