This is one of the most difficult market environments that the insurance industry has seen for decades. Recent results are revealing combined ratios above 100%, with relief from reserve releases nearly exhausted. We are seeing more headlines around employment efficiency and job losses as companies struggle to maintain margins in an environment suffering from overcapacity, decreasing rates, and increased operating expenses. It doesn’t sound like a positive picture! But there is one class largely defying these macro trends – cyber insurance.
Cyber risk is firmly on the business agenda, particularly in the wake of the WannaCry attack at the beginning of May. The publicity surrounding high profile hacks, the financial damage of larger losses and the reputational fallout, has built a greater awareness among business leaders of the risks they face. This, combined with legislation (particularly in the US but also the incoming EU GDPR Directive in 2018) and agnostic geographic reach of malicious actors has led to the demand for an insurance product that can cover these emerging risks. This is undoubtedly the greatest opportunity for a risk-taking industry to demonstrate why the London market is the market of choice for specialist insurance and reinsurance risk throughout the world. But there are challenges…
The cyber market is rapidly growing but the insurance markets don’t have the capacity, or individual appetite to meet all their clients’ needs. This has helped create a perfect scenario for the cyber reinsurance market to enter and provide genuine benefit to the marketplace. Capsicum Re has seen many new reinsurers enter this class and this shows no sign of abating.
Reinsurance is a trusted and proven solution that allows market participants to immediately absorb demand for cyber products. The cyber reinsurance market is maturing at an unparalleled rate and those that hold on to structures and strategies of 18 months ago will find themselves outpaced and outmanoeuvred quickly. Innovation is a term thrown around too liberally in our market place but within cyber reinsurance a select few reinsurers are creating cutting-edge structures and are empowered to provide solutions not stop gaps to this peril.
But there are still the naysayers, those who believe cyber has the potential to be the next asbestos so are sat waiting for the ‘I told you so moment’. We would all like to wait for the end of the soft market but insurance is developing so downing tools and waiting to time the market is not a strategy, it is treading water at the mouth of a waterfall.
That said there is ample reason for this passive view with insurers and markets being both poacher and game keeper. Risk adverse regulators and risk management committees struggle to balance the desire for London to be the leading global risk market while also trying to self-regulate risk taking. It is impossible to be innovative and risk averse at the same time so our market needs to find a solution.
There is an opportunity for the London market to continue to be at the forefront of innovation- cyber is that opportunity. Reinsurance capacity will continue to play a vital role in enabling the market to grow and Capsicum Re will continue to encourage engagement from those who are currently unconvinced and drive greater investment into this growing class.