Re/insurance industry must recalibrate cyber risk approach to reach untapped potential

As per a new report from Howden Re, the reinsurance and risk advisory arm of the Howden Group, while perceptions of heightened systemic risk within the cyber re/insurance class have been persistent, the rewards offered are often underestimated relative to natural catastrophe exposure.

Howden Re’s report, Re-framing cyber risk: navigating threats and embracing opportunities, reportedly utilises data from cyber underwriters’ modelled losses, providing a “first-of-its-kind” comparison.

In it, the firm chiefly urges a shift towards a more balanced view of risk, in addition to a more nuanced approach to cyber exposure management, as the data indicates that the industry should bear more cyber risk.

Luke Foord-Kelcey, Global Head of Cyber, Howden Re, commented, “Cyber risks consistently top the rankings of risk managers’ concerns. To stay relevant to those buyers of insurance, as an industry, it is imperative that we embrace this class of business.”

Foord-Kelcey added, “Investing in cyber-specific expertise and leveraging refined risk models are key to navigating the complexities of cyber threats effectively.

“This approach will not only transform perceived vulnerabilities into competitive advantages, but also enable our clients to capitalise fully on the burgeoning opportunities in today’s digital landscape.”

According to Howden Re’s data,  larger carriers assume a disproportionate amount of nat-cat risk when compared with cyber, even though nat-cat historically produces more significant losses – both in economic and insured terms.

“By contrast, cedents with relatively smaller balance sheets are often markedly more exposed to cyber as a percentage of business mix, with several establishing themselves as leaders in this rapidly evolving market,” Howden Re said.

David Flandro, Head of Industry Analysis and Strategic Advisory, Howden Re, observed, “The maturing of the cyber market necessitates a thoughtful recalibration of how cyber risks are underwritten.

“A transition is necessary: from viewing cyber threats through a catastrophic lens, and instead recognising the competitive advantage that can be gained through more nuanced and informed risk analysis.”

Howden Re concluded, “The report serves as a clarion call for the (re)insurance industry to recalibrate its approach to cyber risk.

“By advocating for a shift towards a more balanced and informed underwriting strategy, Howden aims to spearhead a movement towards greater assumption of cyber risk, backed by rigorous analysis and strategic foresight.

“As the market landscape evolves, this shift could redefine the industry’s role in shaping the future of cyber resilience and security.”

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