Reinsurer Swiss Re told virtual media day attendees that the coronavirus pandemic has switched cyber cover from being a ‘luxury’ purchase to a ‘must-have’

Reinsurance firm Swiss Re said the Covid-19 pandemic could be the “watershed moment” for cyber insurance, acting as a catalyst to boost mass penetration for SMEs and individuals as well as change the product’s perception from an optional, “luxury” insurance to a “must-have”.

Speaking at the company’s online media day on 25 June, Anthony Cordonnier, head of cyber product management, explained: “If you think of cyber insurance as a low penetration product up until now, we think it’s really going to move from that luxury, optional purchase to a must-have.

“More and more businesses have been forced online to survive and the risk landscapes, even though it shifted already, I think psychologically it’s really going to move from the traditional bricks and mortar to online networks.

“The growth of the cyber business has been very healthy over the last few years, [growing by] 20% to 30% a year, and we think the crisis might be that watershed moment where we see the mass penetration of the product reaching SMEs as well as private individuals.”

Swiss Re estimates that in 2020, cyber insurance premiums will amount to $5.5bn – an increase on the $4.5bn it predicted for 2019, however still lagging behind other, more established, lines of business.

“If you compare that to other more established lines of business, of course it’s still quite small and the levels of penetration are still quite low.

”The main factor [contributing to the low penetration] is really risk awareness; the missing risk awareness, that’s been a growth inhibitor, particularly for SMEs and individuals.

”Many small businesses don’t see the risk as real or at least they didn’t see that the risk was real until now,” Cordonnier continued.

Cordonnier said the cyber insurance market was initially born in response to highly publicised data breaches at large US retail organisations.

Although this drove the growth of the market, the cyber landscape has now changed, presenting a broader range of risks and risk profiles.

“The risk has really evolved over time and now we don’t talk about privacy breaches all the time, we’re talking about ransomware attacks a lot, resulting [in] extortion money and business interruption,” he said.

The coronavirus pandemic has also changed the cyber insurance market, as businesses have been forced to swap their in-person operations to online models.

Maya Bundt, head of cyber and digital solutions at Swiss Re, added: “In the first quarter of this year, around 16,000 newly registered corona domains were created and about 20% of these domains are suspicious or malicious.

“At the same time, ransom payments increased by over 30% to no more than $100,000 on average. The corona crisis accentuated not only the push for digitisation, but also the risks associated with it.”

She continued, however, that digitisation is also the method by which firms can stay resilient throughout the pandemic.

Cordonnier agreed, adding that the Covid-19 outbreak has “really highlighted the need for robust business continuity plans”.

He noted the disparity between businesses, with some able to work online perfectly from day one of the crisis, while others were scrambling to purchase laptops and organise remote access. He described this as “a game changer”.

There has also been an increase in phishing scams sent to vulnerable customers, Cordonnier added, citing that the World Health Organisation (WHO) has recorded an increase of factor five in cyber attacks since the start of the Covid-19 pandemic. Cordonnier is unsure, however, how this may impact on claims frequency and severity.

Speaking more broadly on cyber insurance prices, Cordonnier added: “For cyber specifically, prices have gone down between 2015 and 2019 broadly speaking, from the time of the large retail cyber losses until 2019.

“Then, the dynamic was really around the broadening of coverage combined with a decrease in rates and I think the reaction on rates for cyber predates the Covid-19 crisis.

”I think we’ve seen ransomware attacks really impacting underwriting portfolios. Those losses have been widely reported and that’s had an impact on rates.”

Future focused

Aside from cyber, Swiss Re’s chief research officer Jeffrey Bohn noted trends in Internet of Things (IoT) sensors, confidential computing, artificial intelligence (AI) and machine learning (ML).

He also predicted an uptick in modelling the interaction of catastrophic risks, for example measuring the risks associated with a hurricane in conjunction with pandemic risks. This could impact on evacuation measures if social distancing has to be maintained, for example.

Bohn further discussed “resilience as a service”. This is “where the insurance industry is moving from an understand and cover orientation to risk, to a predict and prevent”, he said.