Briefing: Cyber clarity move may encourage underwriters to byte

By Jon Guy

For the UK’s regional brokers, events occurring in the Lloyd’s market may seem a world away from the risks they and their clients face in the current economic climate.

However, when Lloyd’s chief of markets - Patrick Tiernan - issued the market’s quarterly update on 9 March 2023, he revealed a new move to deliver clarity on cyber cover.

At present, Lloyd’s underwrites around 20% of the world’s cyber insurance. While it is keen not to become enmeshed in the US cyber market, it expects the rest of the world – including the UK – will see significant growth in this line of business in the coming years as demand increases.

For example, the ongoing war in Ukraine has brought with it not only momentous political and supply chain risks, but also a sizeable uptick in the threat posed by state-backed cyber attacks.

Tiernan said the industry had not yet seen a major, market-wide cyber claim and, therefore, had been unable to develop the “muscle memory” as to how to react to a major event.

So, Lloyd’s has demanded that from the end of this month (March 2023), any cyber policy that is written by its syndicates will split the coverage to include specific clauses and wordings on state-backed attacks.

Tiernan was quick to clarify that Lloyd’s was not looking to ban cyber cover for state-backed events.

Instead, the aim was to deliver clarity on what was and was not covered within policy terms and conditions, to make it easier for both syndicates and Lloyd’s to understand the scale of its exposures to these types of events.

Clarity leading to opportunities

Tiernan explained that this decision will enable Lloyd’s to continue to lead the insurance industry’s response to the growing demand for cyber cover – the hope is that other markets will look to follow Lloyd’s of London’s lead, which will in turn create a more dynamic, global marketplace for the cover of cyber risks.

The provision of cyber insurance has vexed the market and brokers for years.

Concerns over the unknown level of exposure for insurers in the event of a major attack - combined with a string of high profile cyber incidents - has seen underwriters remain extremely cautious of committing too much capacity.

The result is that the demand for cyber coverage from businesses of all sizes continues to outstrip supply.

Lloyd’s is clearly determined to deliver greater clarity on the risks its syndicates are assuming and the diversification of state actor events may provide the ability for underwriters to deliver products with more confidence.

For the UK regional market, this may open the door to more appetite for cyber risks. This could create an opportunity for brokers in a class of business that has promised so much for so long but has typically been restrained by access to capacity.