Timely news from Gallagher Re, as the Government press statement on the fast growing cyber security sector proves how much demand is out there for online protection. Modern infrastructure, banking and goods distribution are all reliant upon WiFi, ID verification, data storage, automated IT systems and comms. Damaging the links in this online chain, hacking or modifying data, plus denial of service, are arguably the biggest threats to any economy, bigger perhaps than traditional warfare. For insurers and brokers, there is an opportunity in the 2020s to expand the cyber market and fine tune the offer to suit mobile lifestyles.
The growth trajectory of the Cyber market will see it become comparable in size to either Property or Casualty by 2040 while exceeding Property CAT in terms of annual reinsurance premium a number of years before. That’s the central prediction of “CY-FI: the Future of Cyber Reinsurance”, a new white paper from the global Cyber reinsurance team at Gallagher Re.
The white paper explores in detail how this PC&C (Property, Casualty & Cyber) market – first discussed by the Gallagher Re team in a 2018 whitepaper – might be realistically achieved by examining the developmental curve of Cyber as a class over the next 20 years based on its history, momentum and characteristics.
According to ‘CY-FI’ the ongoing underwriting revolution in Cyber with the crunch in capacity against a backdrop of an unrelenting rise in demand, has led to a decoupling of premium and aggregate exposure.
This has enabled (re)insurers to leverage the full range of tools at their disposal, from cover to use of technology, as they look to deploy their budget against better quality risks – all of which lays the foundations for future growth, as growing appetite for Cyber risk will stem from its increasing profitability.
STEP CHANGE IN 2023
This leads Gallagher Re’s Cyber team to predict a second wave of growth from 2023 with a jump in the class’ profitability stemming from decreasing loss ratios, attracting both capital and confidence to further drive capacity growth.
By the end of 2025, the whitepaper foresees increasing clarity over Cyber’s future as an insurance heavyweight, buoyed by confidence in data’s ability to predict claims and the effective utilisation of technology to kick-start a ‘data arms race’ between (re)insurers and Cyber Security vendors looking to harness or acquire data solutions to gain a competitive edge. From 2026, the white paper expects this ‘land grab’ to go one step further with growing barriers to entry forcing a convergence of insurance and Cyber technology vendors, in many instances through partnerships and acquisitions.
Ultimately, the whitepaper predicts that if the Cyber market continues to grow at its current pace, it will double in size every three years. Premium projections suggest Cyber reinsurance premium will therefore exceed that of Property CAT in the decade beyond 2030 (see p12 of white paper), especially if insurers continue their heavy reliance on reinsurance, which at present is the destination of approximately 50% of original cyber premiums.
Ian Newman, Global Head of Cyber at Gallagher Re, said: “We anticipate market-shifting changes to occur as Cyber reinsurance outpaces Property CAT – with Cyber ultimately becoming the most-purchased type of cover globally by individuals, SMEs and large enterprises. For example, we predict the majority of Motor premium will become part of the Cyber market, as Motor insurance transforms into a technology warranty for owners of large fleets. Aviation and Marine will see similar shifts.”
With an expectation that data’s ability to predict Cyber claims will drive a ‘data arms race’, between reinsurers and Cyber Security vendors, he added: “We expect this convergence of technology solutions, Cyber-Security techniques, and (re)insurance to create a virtuous cycle. Investors will seek to protect their invested capital and Cyber will become the model class for product innovation and diverse distribution.”
He concluded: “While there are many factors that could influence the future of the Cyber market, much of what our paper explores is, we believe, a matter of not if, but when. Sci-fi has a history in predicting the future and there’s no reason why “CY-FI” won’t do the same. We’ll just have to wait 20 years to find out.”
Download CY-FI: the Future of Cyber Reinsurance from Gallagher Re.