Tough insurance market raises serious questions about value of cover

The hard cyber insurance hard market has become such a big issue that companies are asking themselves whether it is really worth buying the cover, leading Portuguese risk managers said during the Lisbon leg of this year’s Risk Frontiers Europe survey. Participants also expressed concerns about a lack of property catastrophe protection in the local market, especially for earthquake risks. The transfer of systemic risks in the hard market is a challenge faced by companies across Europe, and it is particularly worrying when it comes to cyber risks, according to Pedro Cupertino de Miranda, the risk, cyber security and data protection officer at retail group Sonae. “We have to increasingly ask ourselves whether cyber insurance is of any use with its current offer. If someone tells me that cyber insurance will one day cover liability exposures, for instance linked to the leaking of data from clients, maybe so. But cyber policies today do not pay ransoms or losses linked to data breaches. If insurers offer consultancy and forensic analysis, I prefer to choose my own resources for that,” he said. “The usefulness of cyber insurance is a theme that must be discussed with the insurance market,” agreed Tiago Antunes, head of risk management at Metropolitano de Lisboa. “We need an answer for it, and one that is affordable.” “But first of all, we need to do our homework and try to mitigate the risk as much as we can, and only transfer what is necessary to the insurance market. We cannot expect that insurers will solve all our problems with cyber,” Antunes said. “And we cannot say that we will close all our doors because that is not possible. The question is not whether an attack will take place, but when. And then when the second attack will happen and so on,” he added. Those that have done so can attest to how important it is to be prepared for cyber risks. Portuguese risk managers say that cyberattacks have been taking place all the time and it is only a matter of when a company gets hit. “We often suffer tentative cyberattacks but none have been successful so far,” said Jorge Neto, the insurance manager at retail group Jerónimo Martins. “Retailers are moving in the right direction, information is replicated several times and stored in units that have as high a degree of autonomy as possible. This is making us more resilient against cyberattacks,” he added. Cupertino de Miranda also believes that preparation is key in order not to rely on underwriters that have shown little interest in taking cyber risks. “We have invested more in cyber resilience than in cyber insurance. We believe that if we are resilient, we will be able to resume operations more quickly after an attack. Nobody wants to be three days out of business. In practice, we need to work in a way that we may not need cyber insurance,” he said. But André Rodrigues, who works for BNP Paribas in Portugal, warns that it may not be enough to do things well in-house if vulnerabilities can be found among a company’s customers and suppliers. “It is necessary to build up cyber resilience as it has become very hard to transfer the risk. And that means not only building up our capabilities but also making sure that our business partners are resilient too. Interdependencies are very high, and sometimes they are almost impossible to identify with absolute precision,” he said. Hard market challenges Portuguese companies have been able to find protection in other insurance segments but not always at prices, capacity levels and conditions they are comfortable with. “Price pressure has been an issue, and I am not optimistic about market capacities either. Some lines are challenging in terms of capacity, wordings and deductibles. We have had to change the way we approach the market,” Neto explained. “Underwriters don't seek risks in a heterogeneous way. For example, some are focused on big risks, and others on small risks, so we need to find the right mix to place our programmes,” he added. “I have noticed that the hardening of the market is not limited to prices. It hits conditions too. Wordings have become more restrictive, sub-limits have been tightened and exclusions have been added,” noted Neto. Cupertino de Miranda added that capacity has never really been an issue for his firm. “The issue has really been price. We have a global programme that covers different parts of the world and we have had to adjust its insurance and reinsurance elements.” “In the case of earthquake risks, we have a concentration of exposures in Portugal and insurers are more worried about them. In recent times, property covers have been more stable but liability lines have moved up,” he added. Neto also expressed concern that Portugal does not have a risk transfer mechanism, such as a cat pool, to deal with the consequences of an earthquake. Portugal was devastated by a quake in the 18th century and it is widely feared that another strong event could hit the country at any time. “In Portugal, we are exposed to earthquake risks, we know it, that is nothing new. But what has been done to mitigate this risk? Very little,” said Neto. “We don't have a financial mechanism in Portugal, a pool, constituted by the public and private sectors. It is something that we have been discussing for a while but if we suffer an earthquake today, how will we deal with its outcome?” he added. “Companies that have a strong financial position will be able to react somewhat. But companies are not alone, we are all part of the economy and the country, so how will we be able to rebuild essential infrastructure such as railroads, roads, the energy system, water and sewage and so on? We will not be able to fund it all with the current financial state of the country. That is a risk that has already been identified but little or nothing has been done about it,” he continued. Antunes, for his part, said that employee benefits have also presented challenges for insurance buyers. “One of our main programmes is health insurance, which is highly impacted by the average age of our workers. As people age, health problems become more frequent and treatments more complex and expensive. Medicines have become very expensive today,” he pointed out.

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