Cyber reinsurance is ripe for innovation

GROWING demand for tailored re/insurance solutions is driving the creation of innovative products in the cyber market, according to Antony Cordonnier, co-head of cyber at Guy Carpenter. 

Speaking to the Insurance Day podcast, Cordonnier says he is seeing increased demand for customised aggregation solutions built around specific insurer concerns, such as earnings volatility capital relief or balance sheet protection.

“Optionality has definitely come back into the market,” Cordonnier says, adding the market is seeing more flexibility around attachment points, pricing and premium structures.

Recently the market has seen the return of excess-of-loss structures, but also more novel programmes such as Guy Carpenter’s Cyber XXL product which is a blends excess of loss and quota share treaty programmes. Guy Carpenter has also worked to combined cyber with other products, such as its recent combined cyber and property product, which started out as a tail risk capital relief product for a client where a standalone cyber solution was not economical, Cordonnier explains. 

“Overall, the innovation is a lot less about inventing entirely new products, it’s really more about adapting existing tools to where cyber portfolios are today and meeting clients where they are,” he says. “Innovation is really a sign that both cedants and reinsurers are comfortable to move beyond standard templates and solve specific problems.”

What has changed is that insurers now have a clear idea of what they want to achieve using reinsurance tools, be it volatility, earnings or tail risk, and where standard products do not fit, they are open to “thoughtful targeted innovation”.

The softening market is making insurers more conscious of their profit margins, but other factors are also enabling more sophistication in reinsurance products. Cedants now have more experience with cyber losses, while reinsurers enjoy a much clearer view of cyber accumulation and portfolio behaviour than they did just a few years ago, Cordonnier says. 

There is a much better understanding in the market of cyber catastrophe and how reinsurers can diversify their portfolios to avoid accumulation.

“We’re now seeing accumulation not as a single uniform concept. It can look very different on a portfolio-by-portfolio basis,” says Cordonnier.

“An SME portfolio would include risks that have got a worse cyber hygiene profile… that might lead to greater accumulation potential. Also, the premium levels would generally be lower, whereas a large corporate book would present a much better hygiene profile but would be a lot more exposed to severity losses.”

Going forward, Cordonnier says innovation is likely to remain client driven. “It’s about solving specific problems,” he says. A lot of innovation is also coming from the primary side, with new products such as customer contingent business interruption, cyber property damage and affirmative war cover already entering the market.

“Those are meaningful developments, but they’ll only work well if there’s a shared understanding across the value chain of the triggers, the wording, the accumulation and how the exposure is managed across that value chain,” Cordonnier says.