Cyber insurance needs to be considered as standalone line: JLT Re
The cyber insurance market will become more resilient if it is considered as a standalone line of business rather than a peril, according to JLT Re.
The shift will benefit insurance buyers in the form of greater certainty, expertise, capacity and stability from the re/insurance market in a complex and growing risk area.
"Insurance solutions for cyber risk can differ considerably from one company to the next, reflecting the view that cyber can either be considered a peril that falls within traditional P&C (property/casualty) products or a line of coverage in its own right," said Sarah Stephens, head of cyber, technology and media E&O at JLT, commenting on the launch of a new Viewpoint Report at the Risk Management Society (RIMS) Annual Conference in Philadelphia.
"But, in order to address buyers’ changing needs, we see the standalone market as best placed to facilitate innovative and comprehensive solutions for future cyber risks. As more premiums flow into the standalone market, carriers will be able to evaluate and price risks more accurately as good-quality claims data and sophisticated modelling tools become increasingly accessible. This, in turn, will help ensure the market is better placed to trade through future systemic losses by encouraging innovative reinsurance and insurance-linked securities (ILS) structures. Governmental support is also likely to be needed in back-stopping some of the more catastrophic loss scenarios," Stephens added.
"A more robust cyber market, with comprehensive, standalone policies at its core, would also help eliminate the risk of silent exposures and, ultimately, make the market more resilient to future catastrophic cyber losses. Given the strong likelihood of a major cyber event in future, the market needs to prevent a situation where re/insurance buyers are faced with a dearth of capacity as was the case for terror cover in the aftermath of the 9/11 attacks."
Data breaches have become more frequent in the last five years, with the number of reported data breaches globally rising by more than 300 percent, according to the report. There is also considerable concern over the scalability of the risk, where one cyber event is capable of triggering multiple claims under different policies at national, or even global, levels. As technologies become further embedded in the operations and strategies of organisations across all geographies and sectors, malicious actors will increasingly look to exploit the vulnerabilities associated with innovations such as the Internet of Things, cloud computing, autonomous vehicles, machine automation and connected devices.
Chris Bennett, partner in the London market and international non-marine division, cyber treaty at JLT Re, said: "There is sufficient reinsurance capacity for the current cyber insurance market and increased reinsurer appetite for cyber risk bodes well for long-term growth prospects. New approaches have emerged in recent years as competition between reinsurance companies has stiffened, making non-proportional structures such as excess-of-loss, stop-loss and aggregate covers as commonplace today as the more traditional quota share arrangements."
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