Cyber may never experience another soft market: Gallagher Re

Business leaders have been taught to take it for granted that market conditions change in cycles, with hard markets following soft markets, before they eventually soften again in response to changing supply and demand dynamics. But the cyber market may never again experience a soft market, according to a new white paper published by Gallagher Re, titled Cyber In The 2020s: A Question of Capacity.

Gallagher Re points to capacity shortages throughout the cyber value chain that are putting increasing pressure on underlying carriers to deploy capacity efficiently. Meanwhile, an unremitting cycle of increasing demand and limited supply is hardening the market for cyber in a way that it warns may not reverse any time soon.

Gallagher Re cited one estimate that cyber insurance premium will more than double globally within five years, noting that, with rate increases of 50 percent possible in 2021 alone, it could achieve that level of increase far more quickly.

The white paper argued that cyber has a unique ability to respond to changes in the threat landscape that is not matched by other business lines. The same trend was evident back in 2015, it said, after a series of large privacy breaches including retail giant Target and healthcare provider Anthem triggered large and swift rate rises.

Despite these and other breaches, Gallagher Re argued the cyber insurance market has never been tested by a truly extreme risk event. “The envisaged reaction to a truly catastrophic event, should it ever happen, would be far greater than what we witnessed in the terrorism insurance market post 9-11,” it warned.

Seb Plummer, cyber reinsurance broker at Gallagher Re and one of the authors of the white paper, said: “While the rest of the insurance market may be talking about a hard market, cyber is undoubtedly experiencing one.”

He noted that the principal ingredient required for softening a market is an oversupply of capacity. “Cyber has, to date, not experienced an oversupply – if anything there has been a competitively priced shortage,” he said. “The question therefore, is not even when will the capacity return, but rather: will there ever realistically be an oversupply of cyber capacity?”

Ian Newman, global head of cyber at Gallagher Re, noted that both the COVID-19 pandemic and broader social and economic trends have caused “a quiet technological and cultural revolution,” in recent years.

“With demand for cover surging, significant rate increases being seen across the board, and cyber as a class continuing to perform profitably despite rising attritional losses, capacity is undoubtedly under pressure,” he said. “But for capital providers, the classic supply and demand imbalance that has arisen has uniquely positive consequences.”

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