Even though the cyber insurance market is in a much better place now than a few years ago, it still needs an injection of capital to keep up with burgeoning demand, a speaker said during an industry event earlier this month.
“The conversation has shifted from, ‘Will cyber become a major product in line with property and casualty in the world?’ to ‘Who’s going to contribute to this class of business and hopefully benefit from the expected growth that we’re forecasting?’” Matthew Mann, vice president of Gallagher Re, said during AM Best’s Canada Insurance Market Briefing in Toronto.
Mann said global cyber insurance premium in 2020 was roughly $12 billion but is projected to be closer to $25 billion by 2025. “There’s a huge amount of growth available in this market.”
But with an estimated global cyber insurance protection gap of $900 billion to $1 trillion, insurers and reinsurers will need to play a larger role together.
The amount of premium ceded to reinsurers increased globally between 2019 to 2022, from about 40% of premiums to close to 50% of premiums, Mann said. “If you look at Canada, it’s actually higher, probably more like 60-something,” Mann said during a panel discussion on emerging trends on artificial intelligence technology, cyber and industry innovation.
What could be contributing to this increase? During a wave of ransomware activity in 2019 and 2020, insurers and reinsurers implemented swift corrective action related to rates and deductibles.
“We saw over that period the demand was still high,” Mann said. “But insurers didn’t really deploy that much more aggregate capacity in the market, [carriers] were much more focused on just right-siding their portfolios.
“So the market was stymied for a little bit there.”
But the market is now heading in the right direction. “More capital will be attracted to this area, that would be my expectation,” Mann said. “But I would also say, unlike some other classes of business, when you see a large influx of capital and pressure on rates, we might see that in the short term on cyber, but I don’t see that as a sustainable pressure just given the amount of growth opportunity that’s out there and available for insurers.”
Managing general agents (MGAs) are particularly well-positioned to capitalize on growth in the cyber market as they are typically unencumbered by old legacy systems, among other factors, Mann said.
Greg Markell, president and CEO of MGA Ridge Canada, agreed more capital needs to flow into the cyber insurance market. “But there’s been an influx of capacity that’s coming back into the market,” he said. “There has been some reactivity, which I don’t think is a good thing, but long-term, we’ve weathered the storm…”
From the perspective of Canadian businesses — nearly 98% of which have less than 100 employees — cybersecurity can often be an afterthought. Smaller businesses in particular often have little or no budget for cybersecurity.
But cybersecurity “flows through every single facet of business,” Markell said. “It’s not just applicable to HR, it’s not just applicable to IT, it’s not just applicable to finance.
“It’s the entirety of an organization that it impacts.”
Feature image by iStock.com/Rudzhan Nagiev