CyberCube recently had the pleasure to sponsor the “Inside P&C Live – Shaping the Future of Risk” conference this year. Oliver Brew, Head of Client Success at CyberCube was one of the panelists for the discussion session “Cyber Insurance: Market wide repricing”, together with Erica Davis from Guy Carpenter, NFP’s Elissa Doroff and Nick Economidis from Crum & Forster.
They started the discussion with the latest changes on pricing and market conditions, in particular what was experienced during the 1/1 renewal season. The panel agreed there was a significant increase in cyber rates of between 25% and 50%, which is possibly the greatest spike historically for this line of business. However, it was determined that an increase in pricing alone is not enough to ameliorate the market deterioration; in fact, we are witnessing a general contraction in coverage, with tightening of terms and conditions and a double of deductibles in the best-case scenarios.
Two of the main factors playing an important role in underlying market conditions are a significant reduction in capacity on both the primary and reinsurance sides, and a deterioration of the loss ratios in 2019 with a still unclear assessment of Business Interruption and Legal Liability losses for 2020. Insurance companies are also raising cyber security standards and playing a proactive role in offering more comprehensive coverage and better solutions for those who deploy best practices in a fast-changing cyber world.
The panel then moved onto the recent claims activity, in particular related to the SolarWinds and Microsoft Exchange attacks and debated the question “Is it possible to anticipate event aggregation”? It was widely agreed that the claim activity in 2020 has been driven by ransomware, with rapid loss emergence due to the first-party exposure. Carriers experienced large industry losses, with the potential for a significant catastrophe impact on the reinsurance side. Regarding the ability to predict aggregation, cyber analytics are still some time away from the comparable maturity of property modelling, and some technological single points of failure (SPoF) are still particularly hard to identify.
The role of MGAs in placing SME risk
The challenges of writing cyber insurance for the SME sector, and the role played by Managing General Agents (MGAs) was also discussed. Some companies, especially those not operating in a highly-regulated market, with low budgets to dedicate to the resources needed, will struggle to implement adequate cyber security measures compared to the more sophisticated large companies. MGAs are now helping clients to understand the complex cyber products offering, to avoid gaps in coverage but also unnecessary overlaps. From a client service perspective, some MGAs now have dedicated forensic response teams and 24/7 claim teams to support their customers.
From a broking point of view, the trend is clear: we are observing an increase in placement with MGAs for primary layers. The large amounts of investment funds and the innovation in the cyber space brought by these companies are a great opportunity, especially in a hard market where capacity contraction is severe.
Finally, in terms of analytics when targeting SMEs, it is certainly not an easy job to interpret with efficacy and confidence what the signals are, as generally the smaller the company - the smaller the digital footprint.
The group then briefly touched on the increase in complexity in the regulatory landscape. In early March, the state of Virginia introduced a new law emulating the California Consumer Protection Act, and heavily drawing on the Washington Privacy Act. When considering pricing, underwriters can expect an increase in legal liability costs and class action litigations.
To conclude, a discussion centred around the opportunity for collaboration between carriers and tech companies. Carriers will always try to be innovators, in order to face new competition and new complex risks. For example, there is a general consensus in the industry on the future ability of Artificial Intelligence to find market inconsistencies, and therefore underwrite business more efficiently. It is fair to state that analytics and technology are now a necessity rather than a luxury when taking underwriting decisions.