Navigating the cyber landscape: opportunities and challenges ahead: Howden Re

As cyber risks become increasingly complex and pervasive, cyber insurance has evolved from a niche offering into a core insurance category. The rising demand for cyber insurance reflects a broader understanding of digital vulnerabilities, driven by heightened awareness of systemic risks such as cloud outage, critical dependencies and ransomware. High-profile incidents, such as July’s CrowdStrike-related global IT outage, reveal the far-reaching interdependencies within global digital infrastructure.

Growing appetite and sophistication

In recent years, the industry’s understanding of cyber risks has improved significantly. Insurers have refined their coverage options to address emerging threats, resulting in more tailored and sophisticated policies. Substantial growth and investment in more informed underwriting and data collection have further matured the cyber insurance market.

“One primary hurdle is the constantly transforming landscape of cyber threats.” Luke Foord-Kelcey

As the market matures, there is growing appetite for cyber reinsurance. Insurers and reinsurers, with deep experience and continuous innovation within the market, are now better positioned to offer comprehensive solutions through end-to-end understanding of the risks.

The path to maturity

Despite significant progress, the cyber reinsurance market still faces challenges in fully understanding and managing these exposures. One primary hurdle is the constantly transforming landscape of cyber threats, which demands ongoing innovation in reinsurance products.

Incidents such as the CrowdStrike-related IT outage, albeit foreseeable, underscore the continuously evolving nature of cyber perils and—in this case in particular—highlight the importance of achieving consensus on robust market event definitions for reinsurance.

These challenges underline the need for reinsurers to learn from incidents when considering their product suite and its relevance to future threats.

Reinsurers must remain agile, developing solutions that address current risks while anticipating future threats. Although the industry’s understanding of cyber risks has improved dramatically, this fluidity requires continuous refinement of offerings and investment in education. There is a need to reduce uncertainty, enhance confidence in the market, and align boardroom risk appetite with the realities of cyber threats.

Varying levels of commitment

Within the cyber reinsurance sector, commitment levels vary widely among reinsurers. Some have fully embraced the market, investing heavily in expertise and innovation, while others remain hesitant, reflecting both the complexity of the market and differing views on its long-term potential.

A recurring challenge is scepticism surrounding the accuracy of risk models. Although these models have become more sophisticated, it is important to gain confidence that they fully capture the transforming nature of cyber risks. This issue isn’t unique to cyber; similar concerns exist in natural catastrophe, including once-considered-secondary perils, such as wildfires, that have become primary concerns for insurers.

For those willing to make significant investments, there is a clear opportunity to gain a competitive edge by leading the way in developing cutting-edge products and services. For others, collaboration and education within the industry will be key to building the necessary confidence to increase their involvement in the cyber market.

“The region may soon become the real proving ground for this product.” Toby Lampier

The road ahead

Cyber as a business class has brought considerable profitability in recent years and is growing rapidly, spreading geographically and across business segments, which has been shown to reduce volatility over time. This growth is especially evident in Asia-Pacific, where interest in personal lines in particular is rising, and the region may soon become the real proving ground for this product.

The road ahead will require a collective effort from carriers, brokers, clients, and technology providers to strategically navigate the cyber landscape with a long-term perspective. The future of cyber insurance and reinsurance will be shaped by the industry’s ability to adapt and innovate, ensuring its continued relevance in managing evolving cyber threats.

Luke Foord-Kelcey is global head of cyber at Howden Re. He can be contacted at: lfk@howdenre.com

Toby Lampier is director, cyber reinsurance, at Howden Re. He can be contacted at: toby.lampier@howdenre.com
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