NEWS
Cyber market has reached its most competitive point after pricing corrections
Industry is now showing a real desire to solve systemic risks, says CFC’s cyber expert.
The cyber insurance market is at its peak of competition, and there’s now a “real desire” within the industry to tackle and solve the systemic risk conundrum, says James Burns of CFC.
“The cyber market has reached its most competitive point. Years of rate increases have led to renewed confidence among insurers, and improvements to cybersecurity hygiene have been widespread,” James Burns, head of cyber strategy at CFC, told Monte Carlo Today.
“This has increased appetite to write business and led to better loss ratios, which has increased competition levels,” he added. “We’re seeing softer pricing conditions as a result of that.”
However, market changes vary. Burns highlighted that while the large corporate space and the US small business (SME) space are witnessing fierce competition and rate reductions “typically between 5 and 10 percent”, markets such as the UK, Canada, and Australia haven’t seen as much downward pressure on rates.
“The focus now is rate adequacy rather than rate change,” Burns stated. “We need to know which parts of the portfolio could afford some rate reductions and which can’t, and we’re pursuing a pricing and underwriting strategy based on that data.”
On the topic of loss trends, Burns believes that ransomware remains a primary concern from a severity perspective. “Data exfiltration is a key tactic for threat actors, but crime and wire transfer fraud are major issues for SMEs,” he said.
He highlighted that the MOVEit hack has been a significant event this year, where the compromise of a managed file transfer software platform led to data breaches and extortions. “It has led to a lot of claims coming to market and is driving a lot of the talk around an uptick in activity that we’re hearing,” Burns noted.
When asked about the anticipated changes in cyber insurance pricing in the coming years, Burns said that the cyber threat environment is perpetually dynamic—“a cliche but true”—meaning the market will have to constantly adapt to it.
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“Data exfiltration is a key tactic for threat actors.”
James Burns, CFC
“It’s a short-tail class by and large, which means that we do have the benefit of adjusting pricing quickly when necessary.
“There are concerns about prices already dropping off a little too quickly. There was almost certainly a lot of overcorrection in pricing in 2021 and 2022. But, the market is much better at rating this risk than it was,” Burns pointed out.
“This should mean better calibrated pricing and a market where buyers are paying closer to their true risk price for cover,” he asserted.
“There’s still a lot of uncertainty which needs to be priced into the market—systemic risk exposure being a big one—but on the whole, I think we’ll see continuously deeper understanding of the risk, which should lead to a much more stable pricing environment in the years to come, certainly compared to where we’ve been in the last few years,” he added.
Burns emphasised that addressing systemic risk challenges is essential for the long-term sustainability of the market. Current methods such as specific exclusions don’t fully address these risks, and there will be scenarios in the future that can’t even be contemplated yet.
“We have a fundamental problem in cyber, which is that it’s not always easy to delineate between the traditional claims that insurers are happy to cover and the systemic events that that perhaps needs to be treated differently,” he explained.
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