With a newly published Munich Re report projecting that the global cyber insurance market will hit around $16.3 billion in GWP by 2025, there’s no doubt that it’s an exciting time to be in this space. That was the mood during a recent Insurtech Insights panel which brought together cyber specialists to discuss the state of the market and the all-important question – is the market heading towards hardening conditions again?
During the conversation, Jeff Kulikowski, EVP of cyber & professional liability at Westfield Specialty, highlighted that while rates continue to be under pressure in all revenue bands, they have been levelling out for the past few quarters. A key reason driving the rate decrease is the emergence of new capacity as well as the expanded risk appetite among carriers, he said. However, it’s being tempered by increasing claims frequency and severity, particularly in the ransomware space but also in system failure loss scenarios and the trickle-down impact.
Sharing his perspective, Connor Brennan, VP at Arch, touched on how now, in its third year of rate decreases, the market’s pricing is starting to moderate. “But with a lot of new carriers in this space, it has been a little disappointing from the underwriting side,” he said. “I think there’s still a lot of areas for growth and areas to remain profitable, but we'd hope to see some more underwriting discipline here in the coming year, especially, as well as a little bit of broker discipline too. I think there's been a lot of pressure on brokers to keep driving results and that hasn’t always led to the best outcomes.”
Steven Schwartz, chief insurance officer at SAFE, echoed the opinions of his co-panellists, highlighting that current market conditions can feel like a “race to the bottom”, and one that happens cycle-after-cycle despite discussions about the need for a sustainable rate environment. “Hopefully, we're starting to hit a plateau and, within the next year, we'll start to see rates increase, or at least, get some more validation that we are pricing the risk more effectively.
“Because the last thing we want, is that situation where everybody is hit with a 100% or 200% premium increase to cover the increased claims activity… And we are headed into a world of unknown-unknowns exponentially quicker than anything we've ever experienced before, which, I think we lose sight of sometimes when we’re [embedded] in our everyday transactional underwriting.”
Panel chair, Alexis Vaughn, founder & CEO of Off Course, questioned whether the market is headed back to hard conditions with Kulikowski noting that while he’d love to say that’s the case, “there is so much capacity” available leading to an increased risk appetite. On the carrier side, a lot of boards are becoming more comfortable with cyber risk, he said, while on the client side, they’re seeing decreasing costs as an opportunity to opt for increased coverage – which they should be given the evolving nature of cyber risk.
“But if you look at what caused the last hard market, it was volatility of claims,” he said. “And the disappointment right now is that the volatility of claims is coming back, it’s just in a different area. I would venture to say that from 2019 to early 2022, it was the middle market claims that were really driving a lot of concern.
“[That’s] because you had lower retentions, these are smaller insureds with much less premium, and that kind of market got hit particularly hard by ransomware events. The past couple of years, it has been more in the large account space which a lot of people thought was a safe haven because of $1 to $5 million retentions on complex risks.”
But those retentions are coming down again, along with the prices, he said, and there hasn’t yet been enough response to this changing risk profile. As a result, right now it’s impossible to say that the market is hardening or that it’s likely to harden in the short term – there are just too many different dynamics at play in terms of the increased interest in growing this product. And that’s not just among carriers but MGAs and others as well, which is unsurprising that this is a projected $16 billion-plus market and “everyone wants a piece of it.”
“It’s just up to the carriers, and frankly, the brokers to really develop that long view of where they want to be at in not just one or two years, but three, five, seven and nine years, and create a sustainable marketplace,” Kulikowski said. “And I don't necessarily think we need to see a hard market like we saw a couple of years ago. I just think we need to see stabilisation, just to make sure we have the rates right and the coverage right.”
