PLUS panel: Softening cyber pricing “disproportionate to the exposures”

By Michael Loney

March 6 - (The Insurer) - The soft cyber market pricing is in contrast to increasing claims, according to speakers on a state of the market panel at a Professional Liability Underwriting Society conference, who also suggested carriers must do a better job of sharing data with buyers.

Discussing the threat environment at the PLUS Cyber Insurance Symposium, Tim Francis, enterprise cyber lead for Travelers, said “pricing has come down largely” while the claim trend has increased.

He described the increase in claims as “a little bit more of a slow bubble” as opposed to the large spike in ransomware claims seen a few years ago.

“Last year, we identified 55 new ransomware groups, so those are new bad guys trying to do bad things and trying to monetize activity,” Francis said. “You see social engineering events happening and increasing a little bit in severity as the technology gets more sophisticated.

"So when pricing is coming down and claims are going up, we find ourselves not just in a soft market sometimes, but in a market where we're a little bit disproportionate to the exposures.”

Francis noted that even in some cases where pricing is staying flat, the rate has decreased because the insured’s revenue has increased.

“So as an underwriter, we're thinking about making sure that we have the right price for the exposures of that customer, and that's a challenge in a market in which pricing has come down,” he said.

Anthony Dolce, head of professional liability and cyber at The Hartford, agreed “we’re still in the middle of the soft market”, with abundant capacity. “It's more of a buyer's market,” he said at the symposium in New York on Tuesday.

When asked whether the market needs a big systemic event to turn, Dolce said there were a handful of larger events last year that did not have an impact.

“I think it's just one of those things where the market is the market, and it's going to be cyclical and when attritional losses from claims and some of the larger events reach a certain point that will eventually impact the market and move it a little bit,” he said.

Dolce added that it is “a very uncertain environment, whether from a regulatory standpoint, from a geopolitical standpoint”.

Francis suggested that carriers have to make sure that they are not just pricing products to the exposure but making sure they are providing customers access to risk control services and services “that actually matter to the customers’ ability to better their environment”.

“There’s getting to be a point where you've got to be more precise,” he said. “In some risks, there's still an opportunity I think for pricing to come down. But there are some risks that their pricing needs to come up or their limits need to come down because their exposures just aren't there or they need to get better cybersecurity hygiene to keep that price.

“So I think having that array of services from an underwriting standpoint that can be tied to price and underwriting exposure will be more critical than it has ever been.”

Nadia Hoyte, cyber practice leader at USI Insurance Services, suggested that the market also needs to do a better job of communicating about data to policyholders.

“The entire industry has to do a better job of sharing data, relevant data,” she said.

Hoyte continued: “I don't think that policyholders always get that information about what they could have done better in a consistent way. I think that some of that information resides with IR vendors, and it may not even be given in manageable, digestible spots to insurers as well.

“So I do think that we have to do a better job about sharing data and understanding the rope that forms the data that needs to be shared.”

DEVELOPMENT ON 2016-2020 YEARS

On the same panel, Paul Needle, senior vice president and cyber treaty reinsurance underwriter at Munich Reinsurance America, discussed longer tail claims that have increasingly come into focus for the market. He noted the industry’s claims development for the 2016 to 2020 years.

“We're seeing it in ‘16, ‘17, ‘18, ‘19, and ‘20 all realizing additional movement in the most recent diagonal for those years. (This is) at a time when we're restating historical loss ratios because of the reduction in rate and having difficulty in determining these loss development factors, which certainly have a little bit of complexity that needs to be considered as you're pricing risks in the primary space,” he said.

Needle noted that U.S. companies with revenue over $1 billion are realising these longer tail claims, which has implications for carriers higher up their towers.

Needle said that online tracking litigation “has really surged in the past three years”. This includes Meta Pixel claims, as well as ones related to the Video Privacy Protection Act, the Wiretap Act and California Invasion of Privacy Act.

“It's a rapidly evolving landscape based off of these previously well-known laws or regulations that had a very limited scope and were developed in the ’60s or maybe the early ’90s,” he said. “And here we are litigating a technology that didn't even exist when these were created.”

Needle continued: “The creativity and the persistence in the judicial system is alive and well, and we're going to continue to see these claims. These are third party claims, and there's been a huge spike in these,” he said.

Discussing the VPPA claims, Needle said that a lot of them are getting dismissed, although not all of them.

“But it's 100% a concern, and it could drive further long tail development because of these third-party claims,” he said.