Cyber insurance

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Cyber insurance

What you need to know, and how to seize the opportunities?

The development of connected technologies, or cyberspace, is leading to business opportunities as well as increasing risk. This provides space to develop new and improve existing insurance, leading to premium products. To seize these opportunities to their full potential, non-conventional approach is needed.

Providing stability by being flexible

While insurance business is traditionally built on providing stability by being stable, market needs require insurers to provide stability by being flexible. The reason for this is simple. Due to (exponential) cyber developments, changes in risks as well as markets will happen ever more quickly, so in the not too distant future, only the insurers who know how to service their customers with these changes will remain. Understanding cyber risk and its fundamental role for the future of insurance is a good start.

Cyber Insurance

What is cyber insurance?

Cyber insurance as a product has been around for 17 years but has certainly not yet matured. It has seen strong growth over the last years, with healthy margins seen in the US, for example. And with the persistent threats and incidents in the field of cybercrime, it is likely that cyber insurance will continue to keep growing globally. Also, traditional insurance products will increasingly involve a cyber component. Most obvious are the insurance against payments fraud or corporate liability insurance, while for some other products, like car insurance or health insurance, the impact is less obvious (think of car-jacking by wire, for example, or the required mass replacement of cybervulnerable implants).

The risks of not getting involved in cyber insurance

The insurance industry has met some significant challenges in the last decade. Partly due to changing regulations and competition but also because the risk landscape and risk appetites are always changing. We see cyber as the pinnacle of such change, because it fundamentally changes business models, while the accompanying risks are hard to measure and control. From the perspective of the insured, this has led to expensive products with many limitations. From the perspective of the insurers, it is vital to truly understand the holistic effects of these changes and the associated cyber risks because historic risk trends can be completely disrupted if unforeseen cyber vulnerabilities lead to mass claims for example. By building on old business models, insurers are investing in an industry of the past.

Opportunities in cyber insurance

Markets will increasingly be confronted with these emerging cyber risks. So, insurers who learn to provide their customers with ease of mind by balancing expert services on risk mitigation with limiting impact through fast incident response and solid after-care, will likely make the difference. Such services-oriented insurance need a high degree of flexibility to be effective and efficient and it takes time to develop such capabilities. In the long term, insurers who manage this well will have a significant advantage, also on traditional products, as these will increasingly contain exposure to the new types of risk.

How to seize the opportunity?

Strategic changes are needed to transform from the highly competitive P&C market to a premium market with innovative services that flexibly meet customers future needs. Insurers need to make the right choices and execute them well. They need to choose where they want to play and how they want to win. Those who can develop the capabilities to safely develop a cyber-insurance portfolio will be also able to conquer the market, stay ahead with providing flexible risk services while making a sustainable profit. Just as the cyber risks themselves, these new products should be easy to export across different countries, providing a great international market and potential clientele.

To develop a healthy cyber insurance portfolio, a couple of elements are required. Of course, standard elements such as expertise, access to markets and data are required. In addition, since cyber insurance touches on all the main insurance risk types, out-of-the box thinking is needed for successful development of sustainable and flexible insurance services.

Download the attached report for the table that summarizes some innovative ways to meet the challenges that come with each insurance risk type, providing a sketch of the future of insurance.

More information on cyber risk?

Are you interested to learn more on the cyber risk challenges and opportunities within the insurance industry? Please contact Vincent Lukkien at +31882886674 or via mail VLukkien@deloitte.nl

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