Cyber rates are softening amid a changing risk landscape

Rates in the cyber insurance space are softening but it is also unclear if those rates are commensurate with what is a rapidly changing risk landscape. That was the broad consensus of a panel of experts speaking at Cyber Risk and Insurance Innovation Europe 2023, a conference held in London on Tuesday, February 7.

Throughout the session, called ‘Navigating a hard market, systemic risk and creating a sustainable and affordable cyber insurance marketplace’, moderated by Saranyaa Mohan, founder & CEO, Aruvi Consulting, the cyber insurance market was often compared to an unruly teenager finding their way in life. The panellists debated how to characterise the nature of what remains a fledging market compared with other parts of the industry.

Sarah Stephens, managing director, international head of cyber & FINPRO UK cyber practice leader, Marsh, said that after a few difficult years, the market is clearly now softened and getting more competitive all the time. She said it had recent experienced its first true hard market but that is now coming to an end.

“In the past few years, we have seen the first prolonged change in cyber market capacity. It has been difficult at times, the underwriting process been painful, and it has driven many companies to form group captives. But we think the hard market is coming to an end. Certainly, that is what the data show.”

She offered some data based on Marsh’s experience of the market. Using 2019 as the baseline, rates increased every quarter before peaking in Q4 2021. Since them, the extent of rates increases has started reducing. “We are still seeing rate increases but that trend is slowing,” she said.

Neil Arklie, head of cyber underwriting, performance management, Lloyd’s, challenged this to some extent arguing that the market was instead seeing a repricing of the product. He said the issue of whether the price had dropped relative to the risk remained to be seen. “This is a market that has never had a true cat,” he said. “Yes, it is softening, but has the underling pricing materially changed? The answer is, we don’t know.”

He also made the point that much depends on the outcome of the war in Ukraine, which has absorbed the time and resources of thousands of cyber attackers. Once that ends, they will turn their attention elsewhere, he suggested, which could be bad news for companies and thus cyber insurers.

Jonas Schwade, product manager, cysmo, argued that in Germany in particular a differentiation is emerging between the pricing and availability of capacity for smaller companies, which on the whole can secure affordable coverage, and larger clients. He added that it remains a major challenge for insurers to price and assess a risk that is constantly changing. “The insureds need to understand the insurer has an ongoing role to play,” he said.

Jurgen Reinhart, chief underwriter, cyber, Munich Re, also described the market as a teenager “trying out things and testing its limits”. But he said that a non-negotiable for the market was that it needed to be profitable, something that was often a challenge in the past. “The investors who invest risk capital expect to get a decent return,” he said.

He also stressed that the industry needs to offer a product that fits the needs of the economy. He said that is not necessarily the case for large corporates. “We don’t provide the capacity they need to address this risk. But I also agree that we should not start providing coverage for things we do not understand. Also, we should not cover things that can be fixed by affordable cyber security measures. No one would cover home insurance if the front door was left open.”

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