A hot topic at the Munich Re roundtable yesterday was the growing cyber reinsurance market and how the industry should confront the challenges it poses
The reinsurance industry needs to better understand how to accommodate cyber risk if it is to make the most of this growing market. This was the consensus among a panel of industry experts at the Munich Re roundtable in Monte Carlo yesterday.
Speaking at the Rendez-Vous event, Munich Re’s head of global markets and the North America division Peter Röder said it was a challenge for ILS managers to find new innovative solutions to meet demand.
He said: “In principle we regard cyber as an insurable risk and also as a challenge for the insurance industry around which to position itself. There are parts of the cyber risk that are really difficult to carry.
“But as an industry we should first ask ourselves before calling for the state. State support will be difficult in this area because it’s a very international and global risk when we are looking at the accommodation.
“The industry, and I would include colleagues from the ILS, have every reason to think about this topic, despite the fact there are severe issues in modelling.”
Chin Liu, managing director at global investment firm Amundi Pioneer, said that from an investor’s perspective, they were most concerned about the pricing of cyber risk.
And key to this was that the industry understands the risk definition of cyber.
He said: “In the end it comes down to pricing and what is a fair price for the cyber risks. Clearly if the pricing is too high the buyers will not be motivated to buy it, but if the price is too low, you could make money nine years in a row, but all your profits could be wiped out in the tenth year.
“There needs to be a discussion on that. How we price and understand the risks is key for the ILS market participating in this risk.”
Guy Van Hecke, head of group reinsurance at Axa Global P&C, said the issue currently is that cyber is not sustainably protected.
But he said that the industry is still in the early stages of building the market, and that steps were being taken to eliminate ‘silent cyber’ scenarios.
He added: “We are transforming the way today we are selling the product. Everything was silent before, but now most carriers are thinking of changing the cover from silent cover to affirmative cover.
“Once it is affirmative the cover will exist and we can frame the cover. This is where we go.”
But Van Hecke went on converting cover from silent to affirmative required premium, and that this would take time to establish a functioning market.
Röder agreed there is a gap in the market for cyber risk but said most the fundamental issue currently is that most insurance buyers are not purchasing cyber insurance.
He said this formed a key part of Munich Re’s cyber strategy. Looking into the next five years, Röder added: “The broader diversification of capital entering the market is what I would wish for.
“I can’t tell you what the capacity in five years’ time will be, but a proof point looking forward is whether a growing demand in certain areas, whether that is emerging countries or cyber, can be covered by alternative capital.”