Author: Jennifer Braney
We like to use the analogy of gold mining. Prospectors panning for gold in a stream may discover nuggets easily, but eventually those will run out. To find more substantial gold deposits, you must dig underground, which is harder and requires more time and creativity.
As Gallagher Re explored in a whitepaper released in March this year, the cyber insurance market is uniquely positioned for robust growth.
While corporate risks will continue to be a mainstay of the business, with US buyers providing an estimated two-thirds of the global market, opportunities are emerging in international markets. SME cyber business is growing in some less-established European markets, Africa, Latin America and Asia-Pacific (APAC). Meanwhile, personal lines coverage is taking off in Europe and APAC.
Cyber insurers should, therefore, look to these emerging markets for growth rather than competing for the same pool of business in established markets. However, because international distribution is less developed than in core markets, insurers will need to direct capacity to where demand is growing.
"The cyber market needs to take the supply of capacity and capability to where demand will be," notes Jennifer Braney, Head of International Cyber.
Diversification benefits
Although ransomware is a global threat, tactics and actors vary by region. For example, the recent UK Retail attacks focused on a specific industry and region. "A geographically diverse cyber portfolio helps balance out regional or sector-specific threats. Diversification is not a new concept in reinsurance, and there is a growing argument for its application in cyber, which is generally viewed as an undiversifiable global risk," notes Jen.
Some regions exclude ransom payments from cyber insurance, while the governments of some countries discourage or ban the payment of ransoms for certain sectors.1 This could provide a diversification benefit to help manage ransomware risk, where it dissuades attackers from targeting those regions.
Alternative cyber products can also provide diversification benefits through coverage differences. As Jen explains, "personal lines cyber insurance naturally doesn't cover business interruption, which has been a bigger driver of loss in ransomware claims. Adding personal lines cyber insurance to a portfolio can aid in diversification in that respect."
Tapping into growth
As international demand for SME and personal lines cyber products grows, Gallagher Re will continue to play an important role as a matchmaker.
As the market continues to grow and mature, the role of the reinsurance broker will be to connect the distribution network of local carriers — those with the reputation, brand presence and understanding of their jurisdictions — with global cyber capacity and capabilities.
"Uncovering the rich seams of new business that lie beneath the surface of international markets will be a challenging process. However, with persistence and effort, there are huge untapped opportunities waiting to be discovered," Jen concludes.
