Why one cyber expert believes cyber insurance is in a good place right now

The cyber insurance market has never been in a more stable and positive position going into 2023, largely because of the learning experiences over the last two to three years, one cyber expert told Canadian Underwriter in an interview Wednesday.

“The threat landscape changes incredibly rapidly and can sway by severity quite significantly as well,” said Lindsey Nelson, cyber development leader at CFC Underwriting.

“So, it’s not that the price was ever wrong before, it was just a market correction rather than a hard market. Throughout what I would call the corrected market over the last two to three years, we as an insurance community now have an idea…what are the right prices for clients, while not compromising coverage.”

Prices are different to accommodate for new risks and broadening coverage, Nelson said. Cyber insurers are now investing heavily in in-house incident response capabilities and proactively identifying and preventing cyberattacks before they occur, rather than reactively responding to them.

“Most cyber insurers now have dedicated ‘digital firefighters’ working on behalf of clients to put out a cyberattack quickly and remediate them to get back into a position where they’re operating at full capacity again quicker than ever before,” Nelson said. “We’re now actually preventing more cyberattacks than we are having to respond to them. The product…has rapidly changed from us primarily as an insurance carrier to us as a cybersecurity company who also provides insurance.”

Jack Bottomley, senior consultant for cybersecurity with KPMG in Canada, said in November 2022 the industry responded to staggering loss ratios and market challenges by excluding certain industries – “by and large, healthcare and public sector” – and requiring co-insurance on ransomware. This means the client could be on the hook for say 50% of the cost of a ransomware incident.

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Nelson said she hasn’t seen cyber carriers pull out of classes like healthcare and the public sector.

When it comes to ransomware co-insurance, this “was something that was temporarily taken on by one or two major providers of cyber insurance globally,” she said. “Now we’re starting to see them scale that back up and realize we need to be giving clients the coverage they ask for. And the large majority of carriers outside of that actually kept their wordings exactly the same as they were in a soft market.

“There’s been so much innovation in the market, I think it’s really important that we don’t overlook that and focus on a very small percentage of the market that took some fairly harsh stances and a corrective period of action and look at what is still available in the market and is going into the New Year with a stable outlook.”

In addition to a very high claims acceptance rate, Nelson believes the price of the product is now right for the threat landscape. “And that’s why we say it’s stable in the market,” she said. “[Brokers are] also selling a broader product than they ever have before, given all the services invested around it at that same price point.”

Nelson acknowledges brokers have seen some “difficult renewals” over the last two to three years, but it “certainly feels like [brokers are] out of the storm with that. It’s going to be much smoother in terms of managing client expectations for this year [regarding] the pricing component.”

As well, brokers were spending the majority of their time trying to retain existing cyber clients rather than going after new clients. “We’re going into growth mode again. The refocus is definitely there for brokers as well as many insurance carriers will feel more confident going into 2023.”

Nelson firmly believes cyber is experiencing a corrected rather than a hard market.

“We are quite passionate about the fact that it’s a corrected market rather than a hard market,” she said. “Calling it [a hard market] insinuates that it’s a cyclical market and rates will eventually go down one day, or that suggests that the price was incorrect before. The reality is that we were pricing for the exposure that existed back in that time.

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