As the cyber market continues to harden, buyers will seek alternative risk transfer solutions, predicts New Dawn Risk

The cyber market has continued to harden throughout 2011. Rates have been increasing substantially, anywhere between 40% and 200%. Meanwhile, carriers are routinely dropping their limits by as much as half and maintaining the same premiums – in effect doubling rates. 

Whereas we used to see a lot of single carriers taking a primary limit of $10 million – as recently as 18 months ago – that is now a thing of the past, according to James Bullock-Webster, head of Tech, Media and Cyber at New Dawn Risk. Today, $5 million is the absolute maximum an insured will get from any single carrier.

Meanwhile, capacity is limited, which is significantly disadvantaging first time cyber buyers or business wanting to move to London, as insurers are reaching their premium income allocation just by their renewal book.

Looking ahead, the outlook is not much brighter, he warns.

“The general consensus in the market is that the hardening is going to be here for two more years. 2022 is just going to get increasingly more difficult.”

“Although syndicates will reload on January 1, providing an opportunity to write more business, they will probably be very reluctant to go out of the gates too hard because they don’t want to end up overshooting their allocation and having to put their pens down part-way through the year.”

Bullock-Webster predicts that in the coming year there will be a point at which some larger insurance buyers no longer see the value in transferring their exposure to the insurance market.

“They will decide the time has come to self-insure by setting up a new, or extending the use of an existing, captive – a wholly owned subsidiary created to provide insurance,” he explains.”

“While setting up a captive has historically only been a realistic option for large multinationals, due to the significant cost involved, not least in capitalisation and collateral requirements, the increasing availability of cell companies is opening up captive solutions to a wider world.

“The lower barriers to entry involved with cell captives mean a simpler and more cost-effective alternative.”

”Companies of all sizes looking for cyber insurance will no longer be at the mercy of a fluctuations in appetite and rate and will opt to do it themselves.”