The Expert Podcast

Here’s another insider data point for the cyber insurance industry. Beazley is one of the larger Lloyd’s of London insurance cartel members, and they gave a report on what's going on with commercial lines and also cyber. First of all, their profits fell on its investments—meaning that the money that insurance companies take in from premiums, they put into investment vehicles to pay out claims later. They put everything from equities to bonds to real estate. They have multiple different investment avenues that they use, and obviously, with the stock market down, their investments are down.

But the hidden story within this is the booming cyber market—meaning that in their cyber industry, the premiums are higher. A major cyber insurer now expects its combined ratio to be 80–90 percent. That’s much better than forecast for cyber. The profits are down because of investments—hefty losses on investments—but cyber premiums almost doubled to $473 million from $267 million in the first half of 2021. So $267 million in the first half of 2021, and it doubled to $473 million.

Cyber premiums have increased so much because exposures have increased due to the rise of cyber criminality in the last four or five years. As an insurance agent, this is something to be aware of. If you're presenting risks to your insureds, to your clients, to your book of business, you need to be aware of this new risk creeping into the marketplace for your commercial clients. If your commercial clients do not have coverage, it's almost like you're not providing them coverage for the risks that are important.

What if cyber risk is actually a higher probability than fire or E&O or slip-and-fall or even commercial auto losses? If you're not presenting that as part of a loss prevention program, then you might be leaving some liability and risk exposure for your customer that you and they may not be aware of. Demand has also risen because more companies see the need for protection. In the past, if you were an insurance agent or broker, you had to really explain and tell your clients about the cyber risk awareness. Many commercial lines customers didn’t know anything about cyber risk.

Yeah, they may have heard of it—they may have heard about hacking, ransomware—but they weren’t calling you saying, “Hey, I want cyber coverage.” Now, many clients are bringing that to the attention of the agent or the broker. The other difference in the marketplace is many insurers—like in this case Beazley—they can assess risk better because of technology. They're now starting to be able to figure out risk not from prior claims—because you know, prior claims have nothing to do with what the claims are going to be next year.

It’s not like other lines where you can predict future claims by loss runs. You have to go by assessing the risk for your new insured. Now there are technology platforms and underwriting platforms that can help the insurer determine the expected loss potential for a particular client, price it accordingly, and underwrite it accordingly. So if you're a business that does not have cyber, you might want to look into it—because now the risk can be assessed better.

If you're a broker or agent, look into what markets are available. For a while, the markets were very hard, and you couldn’t really access them. But now, more insurers—a lot of non-legacy, non-traditional insurers—are bringing in methods to create markets and to create products that didn’t exist even six or eight months ago.