The cyber insurance marketplace in Canada is settling down after a period of innovation and somewhat chaotic action, according to Brian Dagg, Gallagher AVP of cyber liability insurance. With an emphasis on increased capacities, widespread price correction and a higher degree of scrutiny being applied to controls and risk posture, the industry has become more sustainable and profitable.
Dagg was a panellist during the 2023 edition of the NetDiligence conference in Toronto, which took place from March 28-29 and was hosted by the cyber risk readiness and response services organization of the same name.
During a breakout session, Dagg remarked that “previously, it was a race to the bottom where everybody was trying to get a share of the market, which has thankfully undergone a necessary course correction.”
“We came from a place where it was competitive and aggressive. Premiums really weren't that all that expensive, coverage was broad while deductibles were low. Everyone was trying to get a share, which was not conducive to a profitable and sustainable landscape. Thankfully, we’ve overcome these hurdles.”
Speaking with Insurance Business in a follow up to his Net Diligence panel, Dagg expanded on what factors are driving this stabilization and why brokers should express cautious optimism about the current state of the market.
The COVID-19 pandemic jumpstarted a more digitized and remote work environment, where various industries relied upon technology to conduct business and enable communication. As a result, cyber attacks grew in frequency and effectively put a strain on the insurance marketplace when it came to underwriting cyber risks.
“Different agents were able to gain access to networks and proliferate their attacks, which was a nightmare when you look at loss ratios,” Dagg said.
“We were also getting quotes with very little to no underwriting perspective, which made it difficult to price a product appropriately.”
Companies recognized its shortcomings in the cyber insurance space and began to work towards greater data hygiene that made underwriters less hesitant to write new business, even with riskier clients and operations.
“In the last 24 months, we’ve seen some pretty significant change in the market with respect to rate, deductible coverage and offering,” Dagg said.
“A lot of this is driven from a security posture control standpoint that insurance companies have mandated.”
This includes basic multifactor authentication controls, endpoint protection solutions, as well as endpoint detection and response solutions.
As a result, insurers have gained more comfort knowing that they have the pick of “best-in-class” controls that have had a positive impact on underwriting rates.
“We’re now looking at multi page application forms or working through supplemental ransomware forms,” Dagg said. “There is a higher degree of scrutiny being applied to controls and risk posture, and we as brokers are working hard to meet those requirements in order to become candidates for coverage.”
The cyber insurance industry has experienced its first real correction over the past two years, which has resulted in the following:
While these advancements have benefitted the industry, Dagg was somewhat cautious on how far the industry has come in a short amount of time.
“I have a bit of concern that the market is changing too fast,” Dagg said. Throughout the past two years, rates increased in the triple digits while deductibles have also gone up, which has changed the course of the marketplace.
While clients would rather see rates go back to how they were a couple of years ago from a premium standpoint, in his view brokers should be focused on working towards a marketplace that has long term benefits.
“I don’t think that what we do from a broking perspective should be at the cost of the market,” Dagg said.
Over two days, industry personnel gathered at the Ritz Carlton Toronto to discuss the state of the cyber insurance industry, key trend analyses witnessed throughout the last couple of years, as well as predictions for the future of the marketplace. Here are some insights from the various breakout sessions:
Throughout a conversation that dealt with topics surrounding cyber underwriting and broking, the insurtech industry was highlighted, especially as the job of underwriting must become more technical. “There’s definitely a case for utilizing and adapting insurtech software and technologies that can help streamline the underwriting process for more simpler coverage,” said Kelly McGuinness, team lead Canada, Production Underwriting and Business Development (East). “We can look to complement the broker’s and the technologies they’re using with the ultimate end goal of satisfying the client and providing a more seamless service.”
Data presented by NetDiligence president and CEO Mark Greisiger showcased that an overwhelming majority of losses for cyber related incidents were by SME operations, at 98% in 2022, while the average cost for SME losses jumped to $198,000. On the other hand, large companies trended downwards to an average of $8,500,000 in losses per event, as opposed to $15,400,000 in the four years prior. Ransomware was the culprit for many attacks amongst both SME and large businesses, followed by email phishing campaigns.
For brokers and insurers with clients that have been subjected to these attacks, there could be an opportunity to explain to the insured how to trigger the coverage they have for business interruption losses. “When these business interruption losses come to my desk, the insureds have spent a significant amount of time and expense to care for this loss,” said Maria Pia Brunello, senior claims specialist, AXIS Capital. “However, not everything they’re submitting is legible for coverage, which means we must sit down with them to make sure they understand their policy to create a more beneficial customer experience.”
