Howden’s data analysis finds insurers should be taking on more cyber risk
Broker says research is ‘clarion call’ for insurance industry to recalibrate its approach
New research from Howden concludes that data indicates the insurance industry could, and should, bear more cyber risk that it currently takes on. The report says a more “nuanced” approach to cyber exposure management, which doesn’t place too much emphasis on catastrophic loss, is needed to help the industry deliver more solutions for clients and better serve their needs.
Howden Re said its Cyber Reinsurance report – Reframing Cyber Risk is a “first its kind” industry report that utilises data from cyber underwriters’ modelled losses to shed light on market trends and provide insight into the industry’s risk tolerance.
It says that the discourse around systemic cyber exposure often veers towards the catastrophic, drawing parallels with the most devastating natural disasters. However, the actual data and trends within the cyber (re)insurance landscape to date paint a markedly different picture, the research concludes.
The reports says there is comparative hesitancy among cedents to underwrite cyber risk versus traditional nat-cat risks. But it finds that nat cat losses have exceeded premiums in four years between 2017 and 2022, whereas cyber premiums have always exceeded losses in every high-profile cyber event over the same period.
The report says this “consistent undercurrent of perceived imminent digital disaster overshadows a realm of untapped potential”.
It urges a shift towards a more balanced view of risk between cyber versus other classes of business.
Howden’s data shows larger carriers assume a disproportionate amount of nat-cat risk compared with cyber, even though nat-cat historically produces more significant losses. By contrast, cedents with relatively smaller balance sheets are often markedly more exposed to cyber as a percentage of business mix, with several establishing themselves as leaders in this rapidly evolving market.
Luke Foord-Kelcey, global head of cyber at Howden Re, said: “Cyber risks consistently top the rankings of risk managers’ concerns. To stay relevant to those buyers of insurance, as an industry it is imperative that we embrace this class of business. This report identifies how carriers may assess their appetite for the cyber class of business to ensure they recognise the extent of the opportunities within the context of a more thorough understanding of the risks.”
The report concludes that (re)insurers can expect a more favourable and diversified risk-return profile from cyber reinsurance underwriting through continued investment in expertise, modelling and analytics.
David Flandro, head of industry analysis and strategic advisory at Howden Re, said: “The maturing of the cyber market necessitates a thoughtful recalibration of how cyber risks are underwritten. A transition is necessary: from viewing cyber threats through a catastrophic lens, and instead recognising the competitive advantage that can be gained through more nuanced and informed risk analysis.”
Howden Re says its report serves as a “clarion call” for the (re)insurance industry to recalibrate its approach to cyber risk.
“By advocating for a shift towards a more balanced and informed underwriting strategy, Howden aims to spearhead a movement towards greater assumption of cyber risk, backed by rigorous analysis and strategic foresight. As the market landscape evolves, this shift could redefine the industry’s role in shaping the future of cyber resilience and security,” the broker said.
