Cyber in the capital market could grow to $100bn catastrophe risk level: Millette

Over the next two decades, as the cyber insurance and reinsurance market grows, there is the potential for cyber insurance-linked securities (ILS) volumes to reach $100 billion, equalling where catastrophe risk in the capital market sits today, according to Mike Millette, Managing Partner at Hudson Structured Capital Management Ltd., and Board Member at CyberCube.

Millette said in a new report from cyber analytics specialist CyberCube, that “the pathway is being laid to create half a trillion of cyber coverage.”

With growth projections for the cyber insurance market having been consistently met to-date, he believes that “mighty convergences” will unfold as cyber risk insurance reaches its potential by 2040.

“As the world becomes more automated, the risk will become more cyber-driven. Maybe the most important insured sector at stake is auto – particularly if autonomous auto is heavily shared and fleeted. The increasing reach of the Internet of Things will drive cyber premiums. Terror and cyber are converging and that will be a driver as well,” Millette explained.

Adding, “While cyber coverage is becoming more necessary, it is also more costly at the same time.”

He also noted that bundled services are going to become an important feature of cyber insurance, with services including inspection, defense and monitoring expected to be increasingly seen.

Further, Millette expects that “significant dedicated capacity will develop in the sector,” while “reinsurance market growth will be necessary as primary insurers typically cede 50-60% of premiums.”

He continued to explain that, “The capital markets are off to a good start. Deal experience to date has been good.

“Unlike the cat sector in which every deal in the first decade needed to be freshly sold into the generalist market, the cyber sector enjoys an audience of over 50 insurance-linked funds, for each of which cyber risk is absolutely diversifying.”

In addition, Millette believes that government-backed cyber insurance sector “security” support is also a likely development.

Millette also believes that the cyber market can grow faster than the catastrophe ILS and catastrophe bond sector.

“Cyber is growing quickly enough that the 25-year journey of the cat sector will need to be compressed by a few years,” he explained.

Leading him to suggest that, “Cyber is likely to grow into a large market over the next 15 years.

“Catastrophe risk in the capital markets exceeds $100 billion and cyber has the potential to become just as large over the next two decades.”

As a reminder, we now have four 144A cyber catastrophe bond issues and a number of private cyber ILS transaction in our Deal Directory.