Briefing: Insurance industry is in the grip of cyber conundrum

By Jon Guy

This week, the (re)insurance industry has been warned that the threat of cyber attacks has been raised a significant level by the escalation of tensions in the Middle East and the ongoing war in Ukraine.

Hot on the heels of the UK government warning that cyber groups attacking UK assets have been supported by the Chinese government, cyber risk analytics company CyberCube has told the insurance industry that it needs to brace itself for potential attacks on the public sector, with governments and election infrastructure being particular targets.

CyberCube’s report – Global Threat Outlook: H1 2024, published on 15 April 2024 – said that government agencies and officials must increase their cyber security measures, enhance election integrity safeguards and collaborate with cyber security experts to mitigate the threat of cyber attacks.

The report’s publication is timely as there are ongoing concerns over Russian cyber groups targeting Western assets, as well as concerns that Iranian-backed groups will begin to target Western interests amid escalating tensions with Israel.

Potential premium confusion

However, CyberCube’s report stated that while cyber risks are rising, premiums are heading in the other direction.

It explained that the average cyber premium increase stood at 1.6% – a significant drop from the 3.6% rise observed in the previous quarter and the 20% uplift recorded a year ago.

The report puts the premium declines down to (re)insurers gaining better insight into the favourable impact of price adjustments and underwriting modifications made between 2020 and 2022, as well as heightened competition in the market.

CyberCube added that as carriers compete for business, this intensified competition has resulted in a decrease in both premiums and retentions, along with an easing in required sublimits.

You have to ask if (re)insurers have truly been benefiting from better insights as surely the rapidly deteriorating risk environment would have them adopting a more conservative underwriting approach.

The industry has always had a short memory.

It was two years ago when underwriters were expressing concern over the scale of ransomware attacks. Brokers were complaining that insurers were agreeing cover only to withdraw the capacity when reinsurers increased the price or scaled back cover at renewals.

Are underwriters prepared?

Brokers are saying that clients are seeking an end to pricing and coverage volatility across all classes – and cyber is no different.

Given the increasingly cautious approach taken by the industry over natural peril risks, reports of a move to cheaper and broader cyber cover in the face of a potential storm will raise a few eyebrows.

The hope has to be that if the predictions of a surge in cyber threats is proven to be true, underwriters will have taken the necessary steps to manage exposures and, with it, the need for any radical repositioning.