Cyber insurance shock could emerge every 10 to 18 years

Howden Re compared potential cyber losses to moderate catastrophe years such as 2008.

Cyber insurance may be approaching another turning point after four straight years of falling rates, as the current soft market has been driven by excess capacity and slower-than-expected growth.

Three areas that were expected to support expansion — larger insurance towers, international growth and greater penetration amongst small and medium-sized enterprises — have not grown enough to absorb the increase in available capacity, according to Howden Re’s “Cygenesis: Origins of cyber market cycles” report.

Howden Re said tower sizes have remained broadly unchanged, whilst the US still represents most global cyber insurance premium volume. 

Increased competition has also placed pressure on pricing, particularly in more price-sensitive parts of the market.

Luke Foord-Kelcey, global head of cyber at Howden Re, said the cyber market is maturing quickly but remains relatively new, making cycle analysis important for insurers and reinsurers.

He said the market is facing a more complex environment where weakening margins are occurring alongside changing cyber threats and shifting loss patterns. 

He added that future market signals may become harder to identify as cyber risks continue to evolve.

The report said market turning points are rarely caused by a single event. 
Drawing comparisons with property catastrophe and D&O markets, it found that a moderate systemic cyber event could be enough to change market conditions.

Howden Re said modelling suggests that an event with a return period of around 10 to 18 years — similar to a moderate property catastrophe loss year such as 2008 — could trigger a significant market response. 

Artificial intelligence was identified as another major factor that could affect future market performance. 

David Flandro, head of industry analysis and strategic advisory at Howden Re, said cyber remains more exposed to changing risks and loss trends than more established insurance classes, whilst also becoming increasingly affected by broader economic and capital market conditions.