Industry needs to step up to meet risk of systemic event

Systemic cyber risk is only an existential threat if the re/insurance industry fails to provide sufficient capacity to cover a catastrophe, according to Munich re’s top cyber underwriter.

Jurgen Reinhart, who won a cyber insurance industry legend award last night, also warned that companies that maintained cyber was uninsurable risked making the industry irrelevant.

Reinhart, chief underwriter, cyber for Munich Re, was speaking at today’s intelligent Insurer Cyber Risk & innovation Europe conference today. Last night he was named an industry legend at the Cyber Insurance Awards, also organised by Intelligent Insurer.

He said Munich Re had increased premiums tenfold since he took charge of cyber, but said “market penetration is still very low”, especially for smaller companies and in regions like Asia Pacific where premium volume in China was just $100 million.

He said the market was not attractive enough to the capital markets and called for insurers to join forces and share information.

Hartmut Mai, group president of Cyberwrite, which sponsored the panel discussion, said one of Cyberwrite’s abilities was to provide insight and transparency for companies and large portfolios. While modelling was still in its infancy and there was still uncertainty around the market, he said transparency was key.

“You have to create a level of transparency to understand the uncertainty,” he said. “Too many large competitors believe cyber is uninsurable. We have to create a level of understanding to convince carriers to come into the market and to provide capacity.”

 Mai added that there was an opportunity in the coverage gap and said stability would be created by “large numbers” as more capacity and carriers came into the market.

Alana Muir, head of cyber at Hiscox, said that governments have a role to play in dealing with systemic risks, along with the insurance industry.

She said exercises with the UK government some years ago showed  that in the event of a category 5 cyber event, the government would have to step in, but said it was clear the critical mass did not exist to handle an event of that size.

She said some steps had been taken since by different governments, but a clear plan with specific roles and responsibilities was still needed.  

She added: “The fear of cybergeddon will be there until the models are fit for purpose. Once we have more comfort, the models will see capital released into the market.”

Many of the panellists agreed that one of the biggest concerns in a systemic event was the uninsured  market.

“Governments should worry more about whether the economy is alive and kicking,” said Mai. As mentioned earlier, the relevance of the insurance industry is in serious doubt if it happens. The industry must do more to provide capacity in the market.”

Alistair Clarke, head of cyber and commercial E&O UK, said brokers needed to go from being conventional brokers to being aggregators of capital.

“Systemic risk has held back capacity providers,” he said. “We are in a unique position to harness capital.”

Clarke said he had been working with Aon Securities on alternative capital and believed this was a potential source of bridging the capacity gap. 

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