Gallagher Re's Wakefield: Cyber market at a 'turning point' to reduce volatility

By Rebecca Delaney

April 3 - (The Insurer) - Gallagher Re CEO Tom Wakefield has called on cyber underwriters to grow demand for coverage as the market approaches an “important turning point” with capacity continuing to expand.

Speaking in an opening keynote at the Zywave Cyber Risk Insights event in London, Wakefield underlined the importance of building a sustainable cyber insurance market.

“We at Gallagher Re truly believe that we're at an important turning point in the relatively short history of cyber underwriting,” he said.

“We believe that with the right approach in terms of underwriting, product and operational investment, we as an industry can help drive down the volatility associated with this line of business, and consequently build a more sustainable, growing cyber market.”

Volatility of the cyber class has hampered growth in the past, with Wakefield characterising the market cycle as “boomier and bustier than most”.

“When the cyber market turns, it turns fast. During each bust, the market has followed the traditional well-worn route of withdrawing capacity, shrinking lines, forcing rates up and aggregates down.”

Wakefield described cyber insurance market conditions in 2022 as a collective market failure, as underwriters sought to write less business rather than renewing expiring aggregates, which would have otherwise exceeded agreed premium business plans.

“Collectively, we as a market failed. Instead of growing exposure, we were actively encouraged to shrink it. A once highly innovative cyber market began to stagnate and continues to see a slower pace of innovation today, more than three years later,” he said.

He warned that if rate continues to deteriorate in 2025, even modestly to meet premium targets, the market is in danger of “chasing itself down”.

“Growing demand is as crucial as expanding capacity. History would suggest that after a significant event in any line of business, interest in purchasing covers increases, but this surge in demand is not guaranteed,” he continued.

Wakefield pointed to the entry of some reinsurers into the terrorism market following the 9/11 attacks, as well as the ‘class of 2005’ reinsurers that offered catastrophe capacity after Hurricane Katrina, as key historical examples where carriers that leaned into a market where others withdrew reaped financial and reputational advantages.

“We need you in the underwriting community to seize this opportunity to develop more bespoke, tailored solutions for clients, to drive down the protection gap,” he said.

Anticipating and managing the (re)insurance cycle, which Wakefield described as “one of the most important ways” to distinguish outperformers, requires an accurate view of the market's future profitability, as well as the ability to grow, shrink or otherwise change underwriting guidelines according to this outlook.

“Forming an accurate view of the market's future profitability requires carriers to take a long, hard look at their pricing adequacy, loss trends and changing dynamics,” Wakefield concluded.

“It's also crucial to have a house view on the likely direction of market capacity, to understand the direction of travel on reinsurance costs and have a sense of how terms and conditions are likely to evolve.”