The cyber insurance space is weathering challenging times as cyber threats continue to evolve.
Mike Palotay, president of Tokio Marine HCC – Cyber & Professional Lines Group, recently chatted with IB TV about the state of the cyber insurance sector and what insurers can do to help their clients in the face of increasing cyber threats.
“It’s never been a dull moment in the cyber business,” Palotay said. “I guess the quick summary would be that there is a demand and supply imbalance within the market. We’ve seen a large surge in demand, mostly due to elevated ransomware losses, and the cyber insurance market has been working really hard to satisfy this increased demand.
“There have been some capacity constraints in the market. Elevated losses did knock a few players out of the business. And this, in conjunction with some ongoing staffing shortages, has really contributed to some tight market conditions.
“There’s been some reporting out, most recently from the NAIC, that shows that several major carriers are still losing money on cyber, despite all the changes last year in rate and underwriting strategy. So we really need to see more stability in losses before rates can come down significantly.”
Palotay said that despite the challenges, there are some hopeful signs in the market. However, even those encouraging signs come with a caveat.
“It’s not all bad news – there are signs that more capacity is beginning to come into the market, and rate increases have begun to moderate this year,” he said. “But it is possible that it might get a little tighter later on this year as the London market or some of the MGAs potentially run out of premium income limit later on this year.”
Palotay warned that insurers need to pay attention to the risk that continued rate hikes may price many customers out of the market altogether.
“I want to recognize that there is some concern that large price increases like we’re seeing may end up hurting long-term demand for the product,” he said. “We’re certainly cognizant of that. My view is that insurers really need to balance rate change with improvements to risk selection, and through scanning and risk analytics help our customers to proactively reduce their risk. We can’t solve ransomware problems with rate alone – otherwise, people are just not going to be able to afford to purchase the coverage.”
