Creating a sustainable, consistent cyber insurance market

The cyber market reached a record size last year – and each new record-breaking year for the sector brings increased impetus for the formation of a truly sustainable cyber insurance market

FORECAST TO grow from $16.7 billion in direct written premiums in 2022 to $33.4 billion in 2027 (Global Data), the rise and rise of the cyber insurance market is unsurprising given the increased frequency and severity of claims affecting every conceivable industry. Assessing some of the core drivers setting the direction of travel for cyber today, Chris McMurray, cyber lead at Travelers Europe, pinpoints recent movements in the makeup of the market. Between the progress of insurtechs bringing a new, tech-focused way of looking at cyber and the return of some traditional market players to the space amid improved market conditions, he says, there has been increased pressure on cyber pricing. “That has made it more attractive to potential insureds to buy where previously they may have found the cost prohibitive – despite the obvious benefits of cyber products,” he says.

However, he also cautioned that the cyber insurance market is no different from other industries in that it holds both challenges and opportunities for stakeholders. Among the challenges facing the cyber sector is the spectre of systemic risk, the disadvantage of limited historical loss data, and its ever-evolving threat landscape. “I think the sad reality as an insurer is that you can often feel like you’re always one step behind those threat actors looking to exploit insureds,” McMurray says. “And even when you think you’ve thought of everything, you always need to consider how to underwrite new risks as they emerge. That’s a constant challenge with cyber, and it’s never going to change.”

Insurance market players have a significant role in creating a sustainable and secure cyber environment, notes Abbotts. The demand is there for cyber risk transfer solutions; a systemic cyber attack on critically and globally used technology infrastructure could have a major detrimental impact on capacity providers’ ability to indemnify losses. “Whether it’s amending the war exclusion to be able to respond to the digital threats of today or sub-limiting ransomware policy limits to prevent total losses and manage the sustainability of capacity portfolios,” he says, “insurers particularly are at the forefront of managing the future environment for clients.” Brokers also play a vital role in communicating with their clients, Abbotts says, particularly in keeping them abreast of new threats and vulnerabilities, with guidance, trends, and updates, and subsequently, ensuring policies respond appropriately in the event of a breach. This is where the power of education around cyber risk comes into its own, according to McMurray, as helping brokers become more comfortable selling the product in turn makes businesses more confident about buying cyber.

For McMurray, the key to offsetting the challenges facing the cyber insurance market is supporting brokers – and their clients – by demonstrating a commitment to increasing the sustainability of the sector. Fluctuations in pricing, in capacity, and in coverage have not done the credibility of the cyber market any good, he says, and there needs to be a push toward greater consistency. From conversations with brokers, he says, he knows that even when clients are happy to benefit from reduced premiums, they question where the changes have stemmed from; meanwhile, brokers worry that new capacity may depart as quickly as it arrived should claims increase and market conditions worsen. “Consistency adds to the credibility of the market as a whole,” he says. “And I think that’s something we should all be striving for when it comes to cyber – whether it be on pricing, capacity, or coverage.”

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“Cyber is still a fairly young product to sell,” he says, “And I think sometimes the cyber market can exist in a bit of a bubble, using acronyms that it just expects brokers and clients to understand without context. So it’s important to explain clearly to brokers and clients what we’re looking for in a good cyber risk, but also to help them get to that position. “And as we grow as a market, that education piece just becomes more critical. For instance, recently there’s been a lot of noise in the press around the war exclusions from Lloyd’s, which I think serves as a really good example of something that has been misinterpreted by those who aren't in the cyber market – and that presents us with a great opportunity to go out there and provide that education.”

“New company markets and [MGAs] are entering the cyber insurance space, which is much welcomed to meet the demands and needs of clients who may be purchasing for the first time or simply looking for alternative options at renewal”

Tom Abbotts, Consilium Insurance brokers

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Another key factor underpinning cyber’s growth is the evolution of cyber coverage and of risk-assessment tools, according to Abbotts. On the former, he notes that insurers are having to keep policy coverages in line with the requirements of today – for example, the recent amendments to the war exclusion within cyber policies. While these changes haven’t come without controversy, he says, they are necessary amendments to ensure sustainability within the cyber insurance market. On the latter, he points to how insurers are using new and enhanced tools to prevent losses. For example, Abbotts says, one tool capacity providers are using is vulnerability scans to rate the cyber security posture of businesses and identify open ports that may be prone to attack. Touching on this evolution, McMurray highlights the power of technology in harnessing the “huge opportunity for growth within the cyber market.” Comparing how cyber risk was underwritten a decade ago to today, he says, you can see the impact having the right technology solutions has had on enabling underwriters to gain a better and more holistic understanding of an insured’s risk profile and existing cybersecurity infrastructure.

“Consistency adds to the credibility of the market as a whole. And I think that’s something we should all be striving for when it comes to cyber – whether it be on pricing, capacity, or coverage”

Chris McMurray, Travelers Europe

Tom Abbotts, associate partner – cyber, tech & fintech at Consilium Insurance Brokers, also emphasises the impact of new players on the cyber scene as a key driver of change in the market. “New company markets and managing general agents [MGAs] are entering the cyber insurance space, which is much welcomed to meet the demands and needs of clients who may be purchasing for the first time or simply looking for alternative options at renewal, perhaps due to increases in premium or changes in terms and conditions,” he says. “Increased demand also promotes healthy competition in the market, which subsequently benefits clients.”

Industry experts

Tom Abbotts

Consilium Insurance Brokers

Chris McMurray

Travelers Europe

Industry experts

Chris has been in the insurance industry for 20 years, working in that time with some of the largest specialist carriers in the market. Prior to joining Travelers, Chris was a cyber product manager covering UKI, Continental Europe, Latin America, and Asia Pacific, providing expertise and gaining insight into cyber insurance markets worldwide. Now, as the cyber leader for Travelers in Europe, Chris is responsible for growing the cyber portfolio, ensuring its place in offering a market-leading product supported by first-class incident response and pre-loss service proposition.

Travelers Europe

Chris McMurray

Tom Abbotts, associate partner at Consilium Insurance Brokers, is a specialist cyber, tech, and fintech insurance broker. With over eight years’ experience in this area, Tom is dedicated to providing tailored solutions to clients across the globe, with a particular focus on the financial services sector. Previously associated with Elmore Insurance Brokers, where he led the cyber, technology, and fintech team, Tom recently embarked on a new venture with Consilium, spearheading the launch of their new cyber, tech, and fintech offering.

Consilium Insurance Brokers

Tom Abbotts

Consilium Insurance Brokers

Chris McMurray

Travelers Europe

Industry experts

Travelers Europe

Chris McMurray

Consilium Insurance Brokers

Tom Abbotts

Chris McMurray

Travelers Europe

Tom Abbotts

Consilium Insurance Brokers

Tom Abbotts

Travelers Europe

Chris McMurray

Published 26 Jun 2023

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“That has been a huge step forward,” he says, “because not only does it allow us as the insurer to underwrite specific risks better, but it also enables us to act as a source of knowledge for the client. When we use these tools, we can let them know where they have a vulnerability, and that can allow an insured to make themselves a better risk and prevent something from going wrong farther down the line.” Considering the upsurge in innovative new products and services entering the market over the last decade – among them, personal cyber insurance and coverage for cybercrime-related incidents such as extortion and push-payment fraud – it’s clear that the cyber insurance market still holds a lot of opportunities, says Abbotts. And market conditions are ripe for these to flourish, amid increased awareness and demand for cyber products, increased innovation, and ever-evolving risk-management tools.

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Leadership

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Employee cyber-security awareness

Cyber security breaches survey 2023

How engaged are business leaders in cyber risk management?

16%

49%

30%

49%

of UK businesses have board members explicitly responsible for cyber security as part of their job

of medium-sized businesses, 68% of large businesses, and 36% of high-income charities have a formal cyber security strategy in place

of corporate annual reports across medium-sized businesses covered cyber risks.

In the last year,

of businesses now report seeking information on cyber security from outside their organisations