Cyber cover has the potential to be a key driver of digital trust, according to a report from Swiss Re.
Cyber is currently the “most obvious” point on the insurance digital value chain that can be used to create trust, Decoding Digital Trust – An Insurance Perspective, a new Swiss Re report has said.
There is a strong positive correlation between cyber preparedness and digital trust, Swiss Re said.
Countries that had invested in cyber security policies, legislation and outcomes found there were greater levels of digital trust within their economies, according to the report.
Despite cyber progress across some regions, however, the report said that executives may still not have a handle on the risk. PWC’s Global Digital Trusts Insights 2022 report said that as many as 60% of c-suite executives did not have a thorough understanding of third-party data breach risks.
“The most advanced product offering we have in the digital space is for cyber insurance. Cyber insurance is still an emerging and forming market,” Swiss Re chief research officer Christoph Nabholz (pictured) told Insurance Business.
Insurers continue to invest in building cyber knowledge, while the market has seen volatility in recent years from the impact of ransomware incidents.
If insurers do a “bad job” on cyber, it will be for three reasons, Nabholz said. Two of these reasons would be within carriers’ control.
The first would be around claims disputes.
“These should diminish as wording becomes more standardised and accepted,” Nabholz said.
The second would be high loss ratios threatening market stability; however, this is a scenario that should not happen if insurers are “prudent with risk management and risk diversification”, according to Nabholz.
Thirdly, a lack of capacity could drive a wedge between would-be insureds and insurance businesses. On this point, Nabholz said that insurers “can only accept risk to a point it is coverable in a free market”.
Swiss Re’s report examined three pillars of digital trust: reliability, security and reassurance.
Security is the “most obvious” way that the insurance industry can build digital trust into their product offerings, with this set to extend into reassurance as decision making becomes “increasingly automated”, Nabholz said.
With carriers increasingly targeting the digital space, agents will not want to rest on their laurels, according to the Swiss Re research boss.
“The dynamics of digitalisation are already changing this space, as insurers seek direct relationships with clients,” he said. “If brokers want to maintain their intermediary role, they may have to consider how they shape their own digital relationships between clients and insurers.”
As for how agents can look to build digital trust, Nabholz said that the “human factor should not be forgotten”.
Nabholz said: “Relatively simple product offerings, such as travel insurance, lend themselves to online purchases. However, clients may continue to seek human advice and reassurance for more complex coverage needs, such as life insurance.”
Human and digital interaction is “not necessarily a zero-sum game”, according to Nabholz, with the onus on agents to show how both could coexist.
“Brokers also play a key role for complex projects that require specialist expertise and provide risk consulting, captive management and claims handling services,” he said.
Despite ranking highly for internet penetration, Canada lagged behind peers including South Korea, Denmark, the UK and the US where it came to insurance penetration as a percentage of GDP.
“Digital will play a role in driving greater insurance penetration; but is probably not the key factor,” Nabholz said.
“The key determinant will be constructing products relevant for all consumer segments. That will include innovating to cover new and emerging risks, particularly in the digital field.”
As for these products, Nabholz highlighted an extension of natural catastrophe coverages following recent hail and flood events and 2021's heat dome.
“It will also involve constructing products of suitable price and relevance for lower income segments, most likely with some form of regulatory support,” he said.