Navigating cyber insurance post-hard market

Tom Quy, senior vice president at Acrisure London Wholesale, argues that the cyber market can thrive through prioritising innovation and collaboration as carriers transition from remediation to proactive problem-solving.

After enduring a challenging hard market period we are now witnessing a resurgence of capital within the cyber insurance market – and with this comes the opportunity to solve the many client pain points which cyber insurance initially set out to address.

During the hard market, potential, new and existing clients were faced with insurers focused on remediating their books and wrestling loss ratios back under control. For brokers, as client advocates, this was a particularly challenging period, characterised by reduced coverage as well as a reluctance to expand product offerings into some of the less well-served industries and territories.

As we enter a new phase of the cyber market, moving from retreat and remediation to growth, there is an opportunity to revisit and resolve many of the issues previously set aside, and further establish cyber insurance as a crucial component of the broader insurance market.

Innovation across reinsurance and insurance

As a result of the hard market contraction, and more recently the requirement to support continued growth, the cyber reinsurance market has been driven to evolve and find innovative ways to access new capital. The consolidation of alternative sources of capital into the mainstream market, including the introduction of cyber cat bonds, broader ILS support, and expanded risk transfer options, have allowed the cyber market to stabilise and ultimately now provide the kind of capacity required to grow and solve coverage gaps that weren’t previously being met.

For the cyber market more generally, however, this is only half the story. The innovation seen within the reinsurance space will now need to be complemented by a similar level of innovation on the insurance side. Reshaping the cyber market's position will require the talented teams within the class to drive product development once again.

To seize the current opportunity, collaboration between all the various stakeholders within the cyber sector, as well as within other lines of insurance, is essential, re-focusing on underserved industries, new geographies, and leveraging specialist expertise to address customer needs and successfully close gaps in the market.

For example, until recently the maritime industry has been significantly underserved from a cyber insurance perspective, with inadequate pricing, coverage, and distribution strategies holding up the development of cyber insurance within one of the world’s largest industries. As a result of the cyber market opening up, however, we have recently started to observe promising examples of how stakeholders in both the maritime and cyber insurance markets are collaborating to deliver well designed products through close partnerships. Products that not only close protection gaps but target customer-specific pain points and are distributed in a way that can only be achieved through true partnership.

This same logic can be applied to SME businesses around the world, where we are still seeing incredibly low take-up rates for cyber insurance. There is a great deal of training and education needed in this part of the market to provide the expertise that can both evolve the product offering but equally enhance the sales and education experience for clients. Technology clearly has a major part to play here, and a willingness by the cyber insurance market to partner with those at the forefront of innovation in this space is a welcome sign of a recovering market, and one that can only assist with increasing uptake.

The London market and the role of specialist cyber brokers

At any one time, the London market represents around 25 percent of all cyber premium written globally. Innovation is imperative if London is to maintain its position as a global leader.

While the London market has proved robust in catering for cyber risks, as more long-standing and traditional cyber placements become better served, they also become better understood, allowing markets across the world to become more competitive.

Consequently, the London market’s need to address a broader set of customer demands goes hand in hand with the cyber market’s need to evolve. So, while the London market has recently demonstrated resilience in addressing outsized cyber losses, evolving customer demands necessitate continuous innovation if we are to maintain our position as a global leader in this field.

Indeed, intermediaries, who not only understand the intricacies of the cyber insurance landscape but also have their finger on the pulse of what customers want, are indispensable in fostering the kind of collaboration that will drive the market forward and manufacturing solutions that can significantly grow the cyber market over the coming years.

Highly specialised cyber brokers play a crucial role in aligning evolving customer expectations with insurer appetite, ensuring that market discussions focus on customer needs and facilitate collaboration.

As we move through 2024, the cyber market continues to hold massive promise, with the transition from remediation to proactive problem-solving being a significant factor in its ultimate trajectory. By prioritising innovation and collaboration, the cyber market not only stands to thrive but also has the potential to shape the broader landscape of the insurance industry.