Businesses and organizations went digital when the COVID-19 pandemic started, changing the shape of the cyber risk landscape, and unsurprisingly, increasing the demand for cyber re/insurance coverage due to heightened and increasing awareness of cyber risks.
Financial services giant S&P Global (S&P)’s latest report found that the pandemic exacerbated the cyber reinsurance protection gap by causing existing and new clients to request larger limits and more inclusions in their policies' terms and conditions (T&C). Some insurers adapted to the changes by offering more advanced services, including value-added assistance services, leading to previously unrecognized premium volume.
Given the boom in digitalization, the report predicts a rise in prices in the cyber re/insurance market between 2021 and 2023 as it expects insurers to continue restructuring their cyber insurance offerings, including increasing rates and adjusting their T&Cs, particularly the exclusions. Some insurers might also further reduce their payout limits, especially where contracts include ransomware or business interruption components.
On the bright side, S&P claimed that reinsurers' expertise in underwriting and modelling could help build up the market, noting that primary insurers already pass approximately 35% to 45% of global cyber premium to reinsurers and rely on them for their expertise in managing potential accumulation risk and exposure to cyber risk.
“In our view, if cyber insurance is to meet the needs of customers in the future, it is more important than ever that the industry focus on risk differentiation, strong underwriting, and assistance services,” the report said.
It also suggested developing a comprehensive retrocession market and using insurance-linked securities (ILS) or alternative capital to improve capacity.
“The market faces increasing demand, but limited supply. In our opinion, lack of capacity could be holding back the development of a sustainable cyber re/insurance market,” the report added.
“The reinsurance industry has been further improving its dataset by collecting information based on the coverage it provides to the primary insurance market. This helps it enhance its value proposition. Therefore, we expect reinsurers to play a major role in cyber risk management and in providing adequately priced protection.”