Global cyber premiums could surpass US$50m by 2030 – Howden

Global cyber premiums could surpass US$50m by 2030 – Howden | Insurance Business America

Insurance News

Global cyber premiums could surpass US$50m by 2030 – Howden

But concerns linger around systemic losses and capital availability

Insurance News

By
Steven Byerley

The cyber insurance market could reach US$50 billion by 2030, according to a new report from insurance broker Howden.

Howden’s third annual cyber insurance market report, titled Coming of Age, highlights three key factors that will determine the market’s growth: distribution, tail-risk management, and attracting capital. Despite the challenges, the report suggests that the cyber insurance market is on the brink of significant expansion.

Following a surge in ransomware claims in 2020 and 2021, which led to a doubling of cyber insurance costs, the market stabilised last year as risk controls improved. However, the report warned of ongoing concerns about ransomware attacks, systemic losses, and capital availability.

The first half of 2023 witnessed a notable increase in ransomware attacks, but carriers’ disclosures indicate that claims have not risen proportionally. This suggests that effective risk controls have made companies more resilient and contributed to a more stable cyber insurance market. As conditions improve, buyers with robust risk controls are benefiting from more favourable pricing and terms.

Although the market is poised for growth, the report emphasised the need for further action to meet the rising demands of clients worldwide. Overcoming challenges related to systemic risk, market penetration, and capital availability is essential for the cyber insurance market to realise its potential.

Cyber warfare

The report also highlights the importance of defining coverage parameters for cyber warfare.

“Getting this right is crucial for the sustainability of the cyber market,” said Sarah Neild, head of UK cyber retail at Howden. “By providing a framework designed specifically for cyber’s unique risk profile, clients will be offered more certainty around the parameters of cover and what is insurable and what is not. The process of defining the limits of cover specific to cyber acts of war will help to fulfil the potential of this market, but only if the clauses are fit for purpose and clients’ needs are met.

“With one of the largest global reinsurers steadfast on the application of their war language, wider adoption seems inevitable, despite carriers’ disparate views on what adoption should look like.” Neild said. “Increased uniformity on this topic would ultimately help the market secure relevance for the long term.”

While pricing increases have driven the growth of cyber insurance in recent years, the market is experiencing pricing declines in certain areas, Howden said. However, the sustainability of this trend is uncertain given the ongoing threat environment. The report said that market expansion requires ambitious plans for exposure growth and a focus on penetrating new territories and engaging smaller companies.

The role of reinsurance

Reinsurance plays a critical role in the cyber insurance market, with around 45% of cyber premiums ceded to reinsurers. However, capacity constraints and price corrections in the reinsurance market present potential limitations, the report said. To achieve significant growth by 2030, cyber reinsurance supply will need to increase substantially. Innovative approaches to matching risk with capital and attracting third-party investors will be crucial for the market’s capital structure.

“Ensuring that cyber insurance is relevant to clients of all sizes is paramount to improving access in new territories and across different sections of the economy,” said Shay Simkin, global head of cyber at Howden. “Attracting capital is also crucial to this goal, a task which should not be underestimated given current macroeconomic challenges and capital constraints.

“Howden remains committed to advocating for clients as the market adapts to what is a fluid and highly charged threat environment,” Simkin said. “As one of the biggest global insurance intermediaries in the world, we are conscious of our responsibility to inform the discussion in the interests of clients. Our report attempts to do just that. The analysis included extends to other critical areas such as supply chain risk, the fallout from the Ukraine war and read-across implications for future conflicts. By bringing important market trends to the fore, Howden is leading the discussion, enabling us to facilitate the most innovative client solutions and secure unrivalled access to capital providers.”

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