The world’s dependence on online technology has grown so great, it may surpass the global insurance industry’s capacity to fully protect it. That was a common theme from senior insurance executives I recently interviewed for a new series of NetDiligence webinars.
Albert Benchimol (CEO and President of AXIS Capital), Stefan Golling (Chief Underwriter for Munich Re) and Sean Ringsted (Chief Risk Officer and Chief Digital Officer for Chubb) all pointed out the cyber insurance market may need government capital support. In our fireside chats, we discussed how a public-private partnership might be necessary to manage the world’s largest cyber aggregation events.
While Albert Benchimol emphasized that his views were personal and didn’t necessarily represent an industry perspective, he compared cyber accumulation to “COVID on steroids”. He stated that for the largest aggregation events, “we're probably going to need some sort of private-public partnership”.
Sean Ringsted said that such discussions will need to take place: “The insurance industry can and will do more because our clients demand that. But at some point, I think you are entering a time and space where there need to be discussions around public-private partnerships to be able to address some of the really, really significant tail risk that could potentially arise in some of the scenarios.”
Meanwhile, Stefan added there was a role for the ILS market and alternative capital to support the cyber insurance market. “There are risks involved in cyber that are maybe so systemic that the capacity of the market could come to its limits,” he explained.
Calls from these leading industry figures for alternative capital and support are a sign of the enormous size of the opportunity for the (re)insurance market. For example, Munich Re has been bullish about the continued growth of the cyber insurance market as a whole, expecting it will triple between 2020 and 2025. Munich Re has estimated it currently has a 10% share of a roughly $7 billion cyber insurance market.
Hundreds of billions of dollars of potential losses are at stake due to cyber each year - and this number is ever growing. It's hard to imagine that the economic value is at risk will not increase substantially in the years ahead, with Internet of Things (IoT) devices, the digitization of the global economy and increasing connectedness to the Internet.
The scale of the opportunity also highlights how insurers can be at the forefront of solving some of the largest and most consequential risks facing society in the 21st Century. Insurers have real expertise in managing, structuring and sharing these risks through financial products with their own capital (and potentially capital from the public sector too). In recent years, P&C insurance has struggled to grow at a rate much faster than GDP. At times there has arguably been an excess of private sector capital chasing too few opportunities in insurance and reinsurance. In that context, an emerging peril where the opportunity is so large that it may require government capital support is another reason why cyber insurance is, and will likely continue to be, top of mind for the c-suite of the world’s largest insurers and reinsurers.
