Who will be the cyber winners?

It will not surprise many that this year’s European Risk Frontiers survey of leading risk managers has found macropolitical and economic uncertainty at the top of the risk agenda in virtually all decent-sized corporations.

It will also surprise few that corporate risk and insurance managers across Europe remain frustrated by the apparent inability of the insurance market to break out of its shell and truly offer them the coverage and service they want and need in today’s complex global environment.

The latest discussions we have held with risk managers in Spain and France, published in this issue, all seem to lead to the same conclusion.

Insurance capacity remains abundant and there are few expectations of an overall market hardening. Corporate insurance coverage for Europe’s larger companies will remain relatively cheap.

The big insurers are talking a tough game as they struggle to maintain profits in such a competitive market, with little relief offered by investment returns and thinning reserve pots. But the fact that there are simply bundles of fresh capacity eager to pick up any spare business – not least in the so-called specialty market – makes life very difficult indeed for the market leaders.

It is one thing to order underwriters to say no and take a 5% drop in volume on the chin. But if competition is so intense that this leads to a collapse in volumes of say 10% to 15%, then the insurer has a big problem.

Modern-day global insurers have big fixed cost bases that are not easy to trim at speed. So insurers are in a tight corner currently and this strongly suggests they will really struggle to offer the kind of groundbreaking innovation that risk managers really want.

Given the lack of flexibility and basic investment funds available to the big insurers, it is hard to work out how they are going to deliver things like bespoke, enterprise-wide cyber insurance programmes that customers really want.

If the insurers remain on the back foot because of overall market conditions, their ability to react to fast-evolving customer demand will remain limited.

With the commercial insurance market boxed into a corner, the fact that the rest of the world is busy investigating potential opportunities offered by digitalisation, the Internet of Things and Big Data must lead to concern that the risk transfer industry could find itself suddenly disenfranchised in core markets.

If nothing else, Europe’s risk and insurance managers surely cannot simply hang around moaning about the apparent inability of insurers to meet their needs and wait for them to react. If they do this, they could find themselves blown away by the speed of change too.

Cyber risk is a good example of this whole challenge. This risk needs to be actively managed at source in a truly enterprise-wide manner and risk managers need to play a central role in this process. Insurance is not the answer to this risk by any means, but it can be part of the solution.

The risk manager needs to first work out exactly what the exposure is, how to measure and model it and then work out which elements need to be insured and in what way.

Then they need to go out to the insurance market and explain what they want. It will then be interesting to see which insurers and brokers can come up with the most appealing, properly priced and cost-effective solution. Despite their difficulties, some will emerge as winners…or at least be the longest survivors.