Ferma warns cyber market is ‘evolving in isolation’ from insurance buyers

Ferma is concerned that the cyber insurance market is “evolving in isolation from the industries that it insures” and believes there is a real risk that the cover will simply lose its appeal if restrictions and exclusions continue to grow.

The federation of European risk management associations has therefore called for more collaboration between a range of cyber insurance stakeholders to improve matters for buyers, and has proposed a COP-style annual event to focus on this issue and cyber resilience.

The cyber market has been incredibly tough for buyers over the past few years as rates spiralled and exclusions added, with a particular focus on war clauses.

The 2017 NotPetya cyberattack was a big factor in insurers and reinsurers moving to tackle this issue. Risk managers around the world have since suffered more cyber exclusions in their cyber cover, alongside plummeting cyber capacity and much higher prices. Lloyd’s of London is among those carriers demanding that standard cyber policies exclude big state-backed attacks over fears of huge losses from a systemic cyberattack.

Ferma is concerned by these moves and thinks insurers are developing cover without factoring in the needs of their clients.

It wants the insurance industry to adopt a more collaborative approach to cyber insurance, which balances the risk appetite of the market with the coverage requirements of corporate buyers.

“Without more concerted dialogue between all parties – (re)insurers, brokers, buyers (both largescale and SME), regulators, and service providers – there is a risk that the appeal of the cyber product for corporate buyers may decline due to increasing exclusions and more restrictive coverage, which are reducing coverage certainty,” said Ferma.

Philippe Cotelle, vice president of federation and chair of its digital committee, said the corporate insurance market clearly needs to manage its potential exposure to cyber risk and the systemic threat it poses.

But he said it is “also important to ensure that the product remains attractive and efficient for buyers”.

“Recent decisions to restrict the scope of coverage have created uncertainty regarding the ability of insurance to meet the evolving cyber risk requirements of policyholders, and in particular for larger corporations, which in France, for example, currently make up over 80% of the cyber premium,” added Cotelle.

Typhaine Beaupérin, Ferma’s CEO and secretary general, said more dialogue is needed between risk managers, the insurance market and others.

“To ensure the establishment of a robust and sustainable cyber insurance market for the long term, it is imperative that all participants are contributing equally to its development. Improved dialogue will not only help ensure a product that is fit for purpose but also help build stronger relationships between cyber insurance buyers and the market itself,” she said.

Ferma has proposed an annual cyber event to bring together all the key stakeholders to explore ways to develop and implement the cyber strategies needed to boost cyber resilience and in turn the insurance on offer.

“We need to approach cyber-related risks in a way that is commensurate with the size of the exposure that it creates,” said Cotelle. “For many risk managers, cyberattacks pose one of the most significant and damaging threats to their organisation, while the systemic risk potential is recognised by all. By creating a COP-type event devoted to cyber resilience, we can address this constantly evolving threat at the scale at which it needs to be addressed.”