Marsh urges rate reductions in European cyber market

Marsh’s head of cyber in Europe is calling on insurers to reduce rates for 2023 renewals as appetite for the risk grows, partly thanks to new market entrants, and ransomware losses fall. The cost of cyber insurance has risen by two to three times during the past five years, as insurers hiked prices in response to a spike in ransomware claims. At the same time, retentions have significantly increased. For the largest listed French companies, cyber insurance retentions have risen from Ä5m to Ä20m on average, according to Marsh. Insurers’ reaction to ransomware losses saw capacity in the European cyber insurance market almost halve to $300m-$400m in 2021. However, new entrants this year have boosted market capacity to $500m, according to Jean Bayon de La Tour, head of cyber for Marsh in continental Europe. A number of new carriers have entered the European market, including Starr, Mosaic and insurtechs Resilience and Corvus, while some existing players have returned to “growth mode”, he told Commercial Risk Europe at the Ferma Forum in Copenhagen. Insurer appetite for cyber risk appears to be increasing after underwriting actions taken during the past two years have started to pay off, according to Bayon de La Tour. In response to ransomware claims, the insurance market tightened its underwriting criteria and placed cybersecurity requirements on prospective customers as a prerequisite for cover. Marsh developed a list of 12 key controls of basic cyber risk management and hygiene measures, including access management, multifactor authentication, backups, patch management, incident response planning and supply chain risk management. Despite the heightened risk of cyberattacks due to the Ukraine conflict, cyber insurance claims are now reducing relative to growth in the number of insureds, according to Bayon de La Tour. The frequency of ransomware claims has declined, albeit slowly, having peaked in the first quarter of 2021, reflecting improved cybersecurity and risk management, as well as efforts by security services to tackle cybercrime, he explained. With a stabilisation of claims, rate increases have moderated from a peak at the end of last year, according to Marsh data. Buyers were seeing average rate increases at renewal of 90% year on year in the last quarter of 2021, but increases are now averaging about 0% to 40%. Time for change Bayon de La Tour believes it is time for insurers to cease demanding price increases and begin to reward insureds for risk management improvements with premium reductions. “We are asking insurers to flatten – to plateau – for the 1 January renewal season. For 2022, we hope to see a flattening of rate because it is needed for clients to stay in this line of business. For 2023, we ask for a decrease, and the increase in capacity we have seen should help with that,” he said. “The market adjusted [to the increase in ransomware claims] but now insurers are back to profitability and the partnership is there, so they can give clients some money back to show willingness to continue the partnership. That is what we hope for,” Bayon de La Tour said. Insurers risk “killing the cyber market” if they continue to raise prices, increase demands for information and/or introduce onerous coverage restrictions, warned Bayon de La Tour. Many buyers have already scaled back limits to keep their cyber cover within budget and are using captives to finance higher retentions or act as co-insurers, he added. “We are seeing an increased use of captives, especially in the primary layer to buy back the huge retention. That is a tool that has been heavily used,” said Bayon de La Tour. Despite an increase in capacity, the cyber insurance market is still not working for some large companies. “New entrants are bringing additional capacity to the market. Is it sufficient to cover the real risk of our clients? The answer is no. For the big European corporations we need more than Ä500m, but because it comes at a cost, there are few clients willing to go up to Ä500m in capacity,” he said. New mutual However, a new cyber insurance mutual, MIRIS, is welcome news for risk managers. It is in the process of being set up by a group of European corporates including BASF, Airbus, Michelin and Solvay. Incorporated in Belgium, MIRIS will offer limits of up to Ä25m from 1 January 2023. The increased use of captives and the creation of a European cyber insurance mutual should send a warning to insurers that the market is not meeting the needs of large companies. The move has parallels with the creation of Oil Insurance Ltd, since renamed Everen Group. It was established in 1972 by 16 energy companies in response to inadequate coverage and pricing provided by commercial insurance markets. “When you use a captive, or your own mutual, it can serve as a wakeup call for insurers. It can mean what they are proposing is not fitting the needs of large clients,” said Bayon de La Tour. Marsh is already working with some clients to bring MIRIS into their cyber insurance programmes at their next 2023 renewal, explained Bayon de La Tour. “This initiative is being led by clients. They are building this mutual. We have clients that are part of this project and we are working on their renewal to embed the capacity provided by this mutual,” he said. The creation of MIRIS, which will co-insure alongside a primary insurer, is significant because it will create additional capacity at the lower levels of cyber programmes, where the market is tightest, explained Bayon de La Tour. “It is a very big move for the market. MIRIS will be a follower in terms of pricing and claims. It will not impact the market in terms of pricing but it will affect the market in terms of capacity. It will bring up to Ä25m of capacity per risk, which is no small amount. It will unleash capacity because the first $50m is the hardest to place, as it is considered by insurers as the burning layer. MIRIS will bring 50% of this, so we can quickly get above this threshold in order to unleash the excess capacity,” he said.

Marsh urges rate reductions in European cyber market

New entrants boost capacity as losses fall

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