Cyber enters new era of growth as PC&C era looms: Gallagher Re

Demand in the cyber insurance market will usher in a new era of growth for the risk transfer industry, not just in its size but also in terms of product innovation, as re/insurers harness new technologies and data solutions to gain a competitive edge in a crowded yet complex underinsured space.

That is according to Ian Newman, global head of cyber at Gallagher Re, who discussed the broker’s latest whitepaper in a video interview with Intelligentinsurer.com. He co-authored the report, “Cy–Fi: The Future of Cyber (Re)insurance”, which examines the trends and the likely future of the cyber market, with Ed Pocock, a senior cyber security consultant at Gallagher Re.

“The cyber line continues to grow year on year, but we are going to see cyber develop more as a whole—in the same way that we are seeing cars go driverless. That’s inevitably the market we are heading to,” Newman said.

Gallagher Re has for a while used the acronym PC&C (property, casualty, and an extra ‘C’ for cyber), indicating its expectation that the line of business will one day become as large as the P&C market.

The authors believe this is “realistically achievable”, thanks to decreasing loss ratios and restored profitability and through technology-led solutions.

In its report, Gallagher cited one estimate that cyber reinsurance premiums will double in size every three years, noting that, with rate increases of between 35 percent and 113 percent observed in 2021 alone, it could easily exceed property-catastrophe premium before 2040.

Supporting this stance, Newman said: “I very much stand by the report we did four or five years ago. Much of what we talked about then has come to pass.

“Cyber is not going anywhere. It is a systemic class by nature, and because it’s growing so quickly, people are going to have to rely on insurance to a large degree. I can’t see this diminishing over time.”

Insurance land grab

Newman is of the view that cyber belongs within neither property nor casualty—it needs to be looked at independently. He argued that cyber represents a market opportunity as big as property and casualty, despite being a relatively young class compared to its well-established peers.

“We’re transitioning into a very different world from the one we’ve dealt with historically. There’s no question we will at some point in time end up at a PC&C market, wherein the final ‘C’ is as important as property and casualty,” he said.

Gallagher Re suggested that with risks proliferating and becoming more sophisticated the cyber re/insurance market is going through an “underwriting revolution”, setting the stage for a second wave of growth beginning in 2023.

Pocock believes that hard market conditions in recent years have acted as a catalyst for underwriting changes yet to come into play.

“We very much see the hard market in cyber at the moment,” he said. “That imbalance between supply and demand has enabled a positive driver for change. This is going to be a continued trend.”

An influx of new capital will bring further positive changes within the cyber insurance market, the broker suggested, including investment in the understanding and mitigation of potential losses through technology-led solutions.

“Technology has huge potential, and the hard market has catalysed its uptake,” Pocock said. “Access to data enhances the visibility of risk and allows insurers to look at a deeper level, provided they have the expertise to appropriately interpret that data and turn it into the insights they need, which over time can help them to achieve lower loss ratios.

“Tech vendors are going to play a role here in lowering the barrier to entry for insurers to leverage technology,” he said, citing examples of Microsoft Secure Score, Amazon and Google.

Technology should be used in a targeted way, Pocock cautioned. The industry needs expertise to translate that data into usable insights.

“Tech vendors are unlikely to completely bridge that gap,” he added. “We will be seeing a vendor landscape that’s very interconnected, changing and shifting over time as insurers seek to have access to data and technology.”

Pocock described the expected dynamic as a “data arms race” that will herald “a land grab, forcing a convergence of insurance and cyber technology vendors in many places through partnerships and acquisitions”.

The takeaway here is that the future of cyber is quite exciting. It may not be long before cyber becomes one of the most purchased insurance products globally, with reliance on reinsurance increasing in tandem.