Cyber insurance may be more widely available and sought after in North America and Europe than in previous years but there is a “long way to go” to build it out in other regions, with simplification, education, and insurance-linked securities (ILS) involvement all potential drivers of future growth.
“If we look at the global cyber market, we will see that 75% of it is still just in the US, Europe is around 20%, and the rest of the world including Asia Pacific and Middle East and so on is lagging behind in terms of awareness and availability of products,” said Sharon Haran, Parametrix VP Europe. “There is a long way to go in those markets.”
Cyber products continue to be difficult for insurance buyers and potential sources of capital – like the ILS market, which is “keen” to see cyber products coming through – to understand, according to Haran.
“Definitely outside of the US, we're still lacking a lot of education and awareness about cyber insurance [and its] benefits,” Haran said. “It should be part of an overall risk management and risk mitigation approach. Cyber insurance on its own, it's not sufficient, but still we hear from markets like Japan, Latin America, a total lack of understanding about the product, and a total lack of willingness to buy and purchase those products. I think this is something that we as an industry should work hard in order to change.”
One method that could drive greater awareness and uptake of cyber insurance could involve simplifying the product.
“What we see today is lengthy terms and conditions, you … have to be a lawyer in order to understand, and also then not necessarily be sure that you will get what you need to get in the moment of truth,” Haran said.
“In this respect, we see an interesting trend that we definitely follow and promote, [and that is] a parametric approach. Since many of the cyber events are really black and white, I think a clear claim settlement process and moving into a parametric model would definitely simplify the approach of the industry.”
Haran spoke at S&P Global Ratings’ third annual cyber insurance seminar, and was joined on a panel by Manuel Adam, S&P Global Ratings associate director, and chair Simon Ashworth, S&P Global Ratings head of analytics and research - insurance.
Panelists were asked to rate how optimistic they were for sustainable growth of the cyber insurance market on a scale of one to 10.
“It's true that when you look at the projections for cyber insurance that were released in 2010 or 2012, we should have seen a market double in its size than the market as it is today, but still I think that there is so much room for innovation,” said Haran, who scored his optimism at a 10.
“It's a totally new field, a growing one, and I'm sure that with all the minds that are being invested, the effort that is being invested, and the capital that is being invested in this domain, we will definitely see an emerging amazing market.”
The S&P representatives were more cautious, with Adam scoring his optimism as an eight and Ashworth an 8.5.
“The catalysts including the fast-evolving technology, elevated cyber awareness, and expansion of products and services are off-balancing the challenges, but insurers need to understand even more the complexity and dynamics of cyber insurance to successfully and efficiently provide coverage, otherwise the challenges could dominate the catalyst going forward,” Adam said.
“We still have a huge protection gap given the high global economic cost of cybercrime and the relatively small insurance market, as capacity is one of the main issues for sustainable cyber market development.
“I'm really excited on future partnerships between primary insurers, reinsurers, and the capital markets and those partnerships could really provide more capacity, could strengthen coverage and give better balance sheet protection against frequent and high severity losses for policyholders around the globe.”
Ashworth said his score was “not really because I’m an eternal optimist, but because I’m a realist and it’s really vital to ensure the relevance of the insurance sector as a whole.”
