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Global Reinsurance Giant Calls for More Innovation, Capital, and an Insurance-Linked Securities (ILS) Marketplace

Artemis | Steve Evans | Nov 7, 2022

Insurance and risk - Global Reinsurance Giant Calls for More Innovation, Capital, and an Insurance-Linked Securities (ILS) MarketplaceSwiss Re says industry needs a different approach to cyber risk underwriting and reiterates calls for cyber insurance-linked securities (ILS) marketplace.

  • Problem:  cyber risk models remain in their infancy and is holding back the ability of underwriters on cyber insurance and reinsurance, leading to a market that isn’t functioning as well as it could.  Inability to quantify exposures accurately is a hindrance to the further development of the cyber insurance market and is a key factor holding back capacity from entering the sector as well.

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  • Enhancing insurability of cyber risks:  Industry needs to evolve the cyber insurance product into something that capital is attracted to, so new capacity can enter the space and support this market’s growth.  Three areas of key focus are:
    • increasing contract consistency and clarity;
    • using standardised data and better modelling; and
    • identifying new sources of capital.
  • Global cyber insurance premiums were around US $10 billion in 2021, while Swiss Re Institute forecasts 20% annual growth to 2025, with total premiums rising to US $23 billion by that time.  This is still a small market compared to its potential, as estimates of annual global cyber losses are as high as US $945 billion, which Swiss Re suggests means that roughly 90% of the risk remains uninsured.
    • Why?  due to insurability limitations, because of the potential for catastrophic but not well-understood events to occur, the concerns over accumulation risk, the lack of robust modelling and insufficient data being available.
    • “There is latent interest in growing alternative capital solutions for cyber risks to support a sustainable cyber market. To date, however, ILS investor interest has been limited, with aggregation risk and model uncertainty acting as main deterrents,” Swiss Re notes.

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Jérôme Haegeli, Swiss Re Group Chief Economist:

As cyberattacks have increased, so has awareness of the risk – and with it, demand for cyber insurance is growing. However, due to the high degree of uncertainty regarding expected losses and the evolving nature of the risk, its insurability is limited. This in turn restrains market capacity, leading to a protection gap of around 90%.

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