AI to catalyse cyber insurance growth

By Michael Loney

April 25 - (The Insurer) - The democratisation of AI tools will increase the threat landscape for less penetrated segments of the cyber insurance market, presenting a “catalyst for growth” for reinsurers to diversify their portfolios in emerging regions, said panellists at Zywave’s Cyber Risk Insights event.

Speaking at the event in London in April, Serena France-Hayhurst, UK cyber placement leader at Marsh McLennan, said threat actors are becoming more aggressive as ransomware groups employ increasingly sophisticated enhanced AI tools.

“In terms of clients and claims, at the moment we haven't seen too much impact. In terms of the coverage and testing of coverage, we really do think that the cyber coverage is fit for purpose in its current state,” said France-Hayhurst.

“Now it's just important to test the cover rather than continue to adapt it. We've seen some insurers looking to affirm coverage around AI, for example. We actually think that the coverage is fit for purpose already, but it depends on future trends and perhaps the market becoming slightly more aggressive, going into a changing threat landscape.”

The U.S. is recognised as the most penetrated geography globally in the cyber insurance market, with western Europe “catching up” and other notable opportunities for growth in Asia Pacific.

“Ultimately, threat actors are always looking for low-hanging fruit. Emerging risks like AI and the democratisation of that technology will be almost the next catalyst of growth in emerging territories where penetration is currently low,” said Alex Podmore, senior cyber broker at Aon.

“In terms of the product, can we make it more cost effective at specific pricing points for those buyers where penetration is currently low? Definitely, yes. It's a really exciting opportunity.”

He continued that as the ransomware epidemic of 2019 and 2020 led to a focus on re-underwriting the cyber product to ensure rate adequacy, this immersion in market conditions meant that the market lost sight of how to develop a more effective product for the underlying buyer, in terms of both price and coverage.

“The reinsurers are very willing to go on that journey and allocate capital to emerging markets. They see it as a significant source of growth, and rightly so,” said Podmore.

“There's some major economies there that are going to be a significantly larger part of the broadest insurance market in 10, 15, 20 years’ time. The one peril that's going to be ubiquitous across all of those lines of business is cyber.”

Podmore added that this geographical expansion will require more structured collection of information at the point of underwriting, including greater integration of technology to capture more exposure information, and using AI tools to structure and collect data from broker question sets.

“Ultimately, reinsurance as an asset class is looking across lots of different lines of business with different liability profiles, ultimately looking to diversify as cleanly as possible across those and allocate capital as efficiently as it possibly can,” he said.

“The better the reinsurance market is able to understand and grasp points of potential accumulation within a cyber portfolio, the more innovative the reinsurance market can also be. That's going to be a really significant source of growth moving forward.”

‘TOO MUCH EMPHASIS ON THE TOOLS’

However, Peter Hawley, international head of cyber at Everest, cautioned against the over-collection of data to the point that it no longer serves to inform decision-making processes.

“I don't want to do down the use of data; I think there's going to be a lot of data that we can use in time. The market can begin to probably get better at predicting trends,” Hawley said.

“But in the market right now as we're dealing with it, I think there's probably too much emphasis on the tools and forgetting that the underwriters are actually getting on doing the jobs.”

Hawley added that with the cyber (re)insurance market poised to expand geographically over the coming years, insurers should focus on upskilling regional underwriting and broking teams to ensure the effective growth of domestic markets.

“I want time and effort in training our colleagues in those territories. Sometimes you've got the wrong accent, or you just don't speak the local language as your first language, and it creates a natural barrier,” he said.

“Looking forward over the next 12 months, if we put more time and effort into not thinking we can do everything from London and actually educating our colleagues around the world, I think that will make a difference.”