Miller’s Hobbs: Cyber market “a long way off from pricing adequacy”

By Michael Loney

Feb 13 - (The Insurer) - Cyber pricing is not adequate as a result of new entrants and issues around how the market reserves, Miller’s Debbie Hobbs said on Tuesday during a panel at the NetDiligence Cyber Risk Summit in Miami Beach.

During a state of the markets panel called “Addressing Variation Across Regions”, moderator Erin Burns of CRC/INSUREtrust asked for views on whether cyber pricing is currently adequate.

Donavan Burgess, head of underwriting at Relm Insurance, suggested that rates are both adequate and sustainable.

“Yes because the underwriting culture is really fixated and driven by sustainability and profitability at its core, and it just allows for Bermuda insurance to navigate the cycles in a very stable manner that doesn't really teeter into the means of inadequacy as other regions may do,” he said at the event on Tuesday.

“We really do kind of hold the line when we see portfolios entering below thresholds and below benchmarks,” he added, noting that during the “ransomware shock” a few years ago there was not a pullback in capacity from Bermuda.

Miller's head of cyber, technology and media Hobbs said she has “a different opinion”.

“I don’t think it is adequate, I don't think it is sustainable,” she said. “I think we are a long way off from pricing adequacy, I really do, and I think we need to get back to it,” she said.

“It scares the bejesus out of me that we are not pricing things correctly, and I'm saying that from a broking perspective. We're also a yo-yo market. As a broker, when I'm sitting in front of boards and talking to them about their risk exposure and their renewal, and they say to me, six months out, ‘What's your pricing going to be?’ I have to turn around and say, ‘I don’t know.’”

Hobbs said that the big swings in pricing are not good for the cyber market.

“I think part of the issue is the way that we reserve in this market – I think we're not adjusting things correctly. And the other issue is we've got too much capacity coming in,” she said.

Hobbs continued that there is a lot of money coming into the market from private equity and other sources.

“Everyone wants to go into cyber, and that is creating a problem for us, because the money's coming from elsewhere so no one’s got the tail,” she said. “They're coming in and running it cheaply, and I can't see how that stops.”

Michael Colford, cyber and tech product leader for Westfield Specialty, said he thinks “the market has stabilised a bit”, but added that “adequacy is a different question”.

Colford noted that the rates today versus the rates five years ago are up 300-plus percent.

“So you can look at this and say, ‘What's a 5, 10 percent price reduction at renewal, when we're already up 300 percent from five years ago.' But with the new markets who don't have to worry about the prior year losses coming in, and this new capital trying to gain some traction in this market – let's all admit it's a great time to be writing cyber business – the additional capital players are now starting to again drive pricing down a little bit beyond where it was,” he said.

Colford added: “So, despite the recent reductions in rate, I think it's still significantly improved but we have to continue that stabilisation if we are going to be more long term players in the space.”

London market had to pivot

Miller’s Hobbs said that the London market has been affected by the stance taken by Lloyd’s around war exclusions.

“It was really tough for London last year because not only were we coming into a really soft market but then we were losing all the business because everyone just went, ‘Well, we're not going to sell war exclusion.’ So we had to pivot,” she said.

Discussing the Bermuda market, Relm’s Burgess said there has been “a massive transition” in the past four years around the risks taken on by the carriers on the island.

Bermuda players initially focused on high excess capacity for larger enterprises.

“What we've seen over the last three to four years is a greater awareness, interest and strategic shift to really embrace new forms of opportunity, as well as to start to address complex risk and innovative elements along the risk spectrum that has been largely dislocated from traditional carriers,” he said.

“So not only did we see more Bermuda carriers begin to act as offering primary solutions as well as excess solutions for large enterprises, but we saw the emergence of innovative insurance companies such as Relm Insurance.”

Relm is a specialty carrier focused on emerging industries including Web3, AI, alternative medicine, biotech and the space economy.

Keith Savino, national cyber and technology practice leader at Trucordia, suggested that clients in the US very large account segment are sophisticated, “and the media is helping you sell this product every day of the week by reporting on what the bad guys are doing”.

“On the large side, it's actually that $100mn in revenue place right now that is very challenging for folks but has the greatest opportunity for growth,” he said. “I actually think everyone's doing a pretty good job of attacking that marketplace. You're doing the difference in conditions. That's an add-in. We own a few captives.

“Those folks who need to buy that are finding now they can build towers more readily, with more carriers in the excess space now. So it's the five over five over five. So you're solving folks’ problems when a year and a half or two years ago I had companies saying, ‘I used to offer five, now I’m lowering to three.’”

Savino suggested the market does a good job of creating the products, terms and conditions, and the rate.

But he added: “We need to do a much better job on the distribution channel side, so that we're not looking at 90 percent of SMB being uninsured, which can't make you guys happy when you walk down Main Street. I'm an optimist, but a sarcastic optimist.”