Insurers will continue to increase cyber insurance rates and adjust terms and conditions, particularly exclusions, and reinsurers can support market growth, Standard & Poor’s Corp. said Wednesday in a report.
“The market would benefit from the development of a comprehensive retrocession market, and the use of (insurance linked securities) or alternative capital to improve capacity, according to the report, Cyber Risks in a New Era: Reinsurers Could Unlock the Cyber Insurance Market.
“The market faces increasing demand, but limited supply,” and the “lack of capacity could be holding back the development of a sustainable, cyber re/insurance market,” S&P said in the report.
“The dynamic change in claims pattern, rise of cyber threats, and huge accumulation risk creates an opportunity for larger reinsurance capacity,” S&P said.
“The number of reinsurers and insurers offering cyber coverage is rising in response. But with such a new segment, we think it is important for reinsurers to offer primary insurers support managing the underwriting and risk management processes for cyber, as they do for natural catastrophe exposures,” S&P said.
Reinsurers’ support has become critical in helping primary insurers “manage cyber risk efficiently, strengthen their cyber risk resilience, perform cyber risk assessments, conduct a cyber defense strategy, and continuously monitor for upcoming cyber vulnerabilities,” the report noted.
As risk consultants, reinsurers can help primary insurers design products and improve their underwriting processes, it said.
Cyber risks, climate-related losses such as wildfires and freezing temperatures, transportation risks and property exposures, including Florida condominiums, present underwriting challenges to the excess and surplus lines market, in addition to pressures created by the COVID-19 pandemic.