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Shedding light on the ‘organised chaos’ in cyber

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The rapidly changing dynamics of the cyber market have been well documented by this publication, as carriers grapple with swelling attritional loss ratios as a result of the proliferation of ransomware attacks.

Insurance Insider first called a coming hard market in cyber in early December last year, as the first signs of significant market movement came through in the 1 January cyber reinsurance renewal discussions.

Then in August we heralded its arrival, as rates surged far ahead of initial expectations, capacity contracted and resistance among carriers to take on new business prevailed.

Recently, one cyber market source described the market to me as “organised chaos” – and a new market survey lends weight to that statement.

PartnerRe and Advisen’s annual joint cyber market survey is one of the best out there for gaining a snapshot of market sentiment, in our view. This year, it canvassed 264 cyber insurance brokers and agents and 112 cyber underwriters and gives a fairly comprehensive picture across client demand, pricing and coverage and underwriting considerations.

The overriding sentiment from that cohort is that the cyber hard market has arrived – that carriers on the whole are unwilling to compete on price or coverage, regardless of account size.

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However, the wider survey findings also shed light on a market where brokers are scraping around to find limit, where pricing varies wildly from market to market, and where there are divided views on how to best tackle the ransomware challenge.

One of the most difficult elements for the cyber market at the moment is that this remediation and market contraction has come when demand for coverage is surging – in particular from existing clients for more limit.

Over half of the respondents in the survey said their insureds were frequently requesting higher limits, although qualitative responses suggested that reduced capacity and cost are limiting what is actually purchased.

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Meanwhile, the survey responses also reflected the varying methods in addressing surging ransomware claims. As this publication has previously reported, the approach to the issue has divided market opinion – with very few in London following the AIG route of deploying sub-limits and requiring co-insurance.

Beazley, in contrast, has chosen to champion the risk selection and risk management approach in curbing ransomware exposures, run in tandem with cyber portfolio management and a push for rate.

The market was roughly split in the PartnerRe-Advisen survey, with 46% saying they had made notable changes to their ransomware coverage.

Of those affirmative respondents, reducing ransomware sub-limits was the most popular action, with comments also adding coinsurance and increased retentions to the toolbox.

Just 13% suggested they had removed the indemnification of extortion payments, a contentious issue that continues to be a hot topic of debate throughout the industry.

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Meanwhile, half of respondents did not believe pricing was becoming more consistent among carriers.

Rates in the cyber market are accelerating fast, with rate rises typically in the 40%-50% range on average but often reaching triple-figure percentage rises depending on the insured and position in the stack.

There is no market consensus on whether rate is adequate yet and many are of the opinion that there is a multi-year correction ahead for cyber.

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Coverage, in contrast, appears to be stabilising, at least for now.

The majority of respondents said they were witnessing more consistent coverage terms – suggesting that risk understanding continues to increase, but pricing isn’t necessarily in line.

Sources have previously said that add-on wordings which broadened coverage and increased aggregation potential were stripped out at the first sign of increased underwriter power, which bodes well for this market sustainability point.

However, some of the survey respondents commented that the hard market was reintroducing disparity on coverage and that this could worsen as the years wear on – suggesting further challenges for brokers ahead.

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This publication has previously said that this market correction needs to be more than just rate – that this current hard cycle in cyber is potentially a once-in-a-generation opportunity to engineer the product as fit for purpose for the future.

It seems like that work is clearly in train – however while that product is being forged, it will result in market dislocation and inconsistency for some time yet.

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