The cyber insurance market should be worth between $60 billion and $100 billion, and parametric insurance is the key to getting it there, according to John Donald, a special cyber advisor at AXIS.
Speaking on a CICA webinar titled Beyond Digital Transformation, in a session that would have been held at the CICA conference in California in March, Donald estimated that the cyber market is currently worth around $7 billion to $8 billion, and has been growing at around 30 percent per year.
It is likely to grow more rapidly in coming years, as carriers tackle the issue of silent cyber by making coverage - or lack of it - explicit in policies as they come up for renewal. “This could double the size of the market in the next couple of years,” said Donald.
But even at double its current size, the cyber market would still be tiny compared to what it should be, said Donald. On average, companies spend the same amount on risk prevention, on things like sprinkler systems for their buildings, as they do on insurance, Donald noted.
Companies currently spend around $120 billion on cyber risk prevention measures, he said - implying the cyber insurance market could grow to around $60 billion, as resources are reallocated.
If cyber insurance had the same premium to asset ratio as the property insurance business, the cyber market would be $100 billion, he added.
Donald argued the cyber market is currently being held back by a combination of a lack of knowledge about cyber, a lack of trust in insurers, who businesses may believe will find excuses not to pay, and the cost of coverage being too high.
“Parametric triggers address all three of these concerns,” said Donald. Parametric insurance is easy to understand, because there are clear triggers that determine whether the policy will pay out. This simplicity also gives policyholders trust they will be paid out, said Donald, because there is no small print allowing insurers to wriggle out of paying.
Most importantly, Donald said, parametric insurance is much cheaper because there are less overhead costs around things like claims handling. Coverage can be arranged for around 45 percent less cost, which can be passed on to the customer or used to enhance yield to attract more investors into the sector, Donald said. A captive can use parametric cover to enhance its profitability, he added.
Marcus Schmalbach, CEO of RYSKEX, said parametric insurance allows businesses to easily create products that suit their needs and are easy for insurers to price. For example, a business concerned about reputational risk could obtain coverage that was triggered by a newspaper article being published in a particular newspaper, he said.
Schmalbach added that parametric insurance is not affected by cycles of hardening and softening markets.
John Donald, AXIS, Marcus Schmalbach, RYSKEX, Cyber, Parametric insurance, CICA