“Going back a few years, we saw a lot of new cyber MGAs come to market, it felt like we were seeing one a week for a while. So, why are we now seeing them struggle?”
The sustainability of today’s cyber insurance market was under scrutiny at last week’s Insurtech Insights discussion on ‘Risk Rewired: Cultivating a Robust Cyber Insurance Ecosystem’ which saw panel moderator Steven Schwartz (pictured right), VP of insurance strategy and underwriting at Safe Security, question what’s impacting startups and scale-ups in the sector.
Mosaic Insurance’s EVP and strategic growth officer Liam Jones (pictured centre) highlighted that true innovation is required for profitability.
“I think the likelihood is that a lot of these cyber startups perhaps believed in what they were selling as technology and as true risk insights into how they could underwrite more profitably. The reality is likely very different,” he said. “When you start an MGA, often the coverholder fees are there to cover your expenses and [help you] get off the ground, and you live and breathe the profits through your profit commission.
“And I think it's likely that quite a few of these MGAs are probably not as profitable as they planned to be. You can raise capital in a world before the last couple of years of interest rates and keep the gravy train going. Whereas today, if you’re not as profitable as you thought you would be, you’re cash-strapped and it’s quite hard to get going. I think the nub of it is that perhaps the technology element of what people were selling in these MGAs didn’t quite cut the mustard.”
Jones noted that this technology is from a risk assessment and risk selection perspective, but also about the management of the overall performance of the MGA. When you back an MGA, like Mosaic does, he said, what you’re looking for is true risk insight that you don’t believe you can achieve yourself. If what you’re looking for is risk insights then the hope is that the MGA will run profitably, and in cyber that takes about three years to feed through in terms of results.
Adding his insights to the conversation, Howden’s global head of cyber, Shay Simkin (pictured centre, right), voiced the respect he has for these pioneers who came into the market when it was still in its early stages The insurance industry wanted to play the same way it had played for 300 years, he said, but in an area of the market where the landscape – and the technology underpinning that landscape – is constantly changing, the market needs to be quick.
“One thing that these MGAs saw is that we cannot use the insurance [companies], we can use them as backers but they cannot work directly with clients because they’re not very adaptable,” he said. “What we have learnt over the years in the cyber insurance industry is that we have to look at those MGAs and basically try and do what they’re doing.”
It is by harnessing the different technologies and solutions that MGAs started using first, that the cyber insurance market has been able to change its offering to clients, Simkin said.
Monica Tigleanu (pictured centre, left), cyber strategy director at BMS Group, underscored that given the impressive amount of media surrounding them and their successes, these new cyber MGAs are not unsuccessful but rather stagnant. Part of this stagnation is stemming from the lack of sales strategy and growth strategy across the entire insurance industry, she said.
“I don’t think we have listened to what our clients need in the spaces that these MGAs have started in, which is SME… that’s why we’re raising capital to go into the large enterprise space, because that space has been growing,” she said. “Because those large enterprise clients have matured their understanding of cyber risk, they understand that they can access more capital in the insurance market and that if they do provide better underwriting information, they can actually get a better price, better coverage, etc…
“And all the famous cyber MGAs have now pivoted to attack mid-market large enterprise which is a channel conflict for those people providing capital.”
Tom Dryden (pictured left), partner at McGill and Partners highlighted that the explosion of cyber insurtechs on to the market was done to address the previously underserved SME market. What they quickly found was that, particularly outside the US, product sales, growth, awareness and education is extremely low.
“It’s that sales piece and that distribution piece that perhaps has become a bit of an afterthought,” he said. “And they’ve got so much VC runway before they run out of time with that. So, [the cyber SME market] is doing some great things, particularly around raising awareness in the SME sector, but we’re certainly going to see some consolidation.
