By Michael Loney

May 23 - (The Insurer) - The new capacity that has entered the cyber insurance market is benefiting buyers through “continued creativity”, although some established carriers question the expanded coverage being offered.

Talking to Cyber Risk Insurer at the RIMS Riskworld conference in Chicago in early May, executives discussed the impact of new entrants to the market.

Richard DePiero, executive vice president, head of Sompo Pro, North America at Sompo, said that pricing is “beginning to stabilise” for companies under $500 million in revenue, especially for industries with greater exposures such as healthcare.

But he said for the larger commercial risk segment above that “you’re still seeing some give-back on rate unfortunately”, especially on large towers.

“You're seeing new capacity come in and really cut pricing to try to get on these programs and take a lot of premium out of the market,” he said. “At some point that has to stop.”

DePiero noted that while in Sompo’s experience the frequency of ransomware events decreased in 2024, severity remains high. He explained that some big towers are affected not only by the ransomware event but also by significant losses due to business interruption and litigation resulting from the event.

“So we can't keep pulling premium out of these large towers and expect to stay profitable,” he said.

When asked why new MGA players continue to enter, DePiero said: “Many MGAs believe their mouse trap to be the best, and insurers that were initially cautious about getting into the cyber market see MGAs as a dip your toes in, safe approach.

“They're able to outsource their underwriting and related expenses and deploy a shorter limit in conjunction with other capacity providers and it is a reasonable approach, however at this point there is a lot of capacity. I think you are chasing diminishing returns.

“Five years ago, there was more growth opportunity for MGAs, and I think some markets are chasing yesterday’s market and that old growth.”

NEW CAPACITY ALLOWING CONTINUED CREATIVITY

Brokers have highlighted that new entrants are bringing benefits for buyers.

Wholesale broker CRC in an update in April noted: “Despite the frequency of claims, the market continues to take on new capacity, leaving room for continued creativity, competitive pricing, and the opportunity to broaden terms and conditions.”

Risk Placement Services in a new management and financial lines report said the cyber market is benefiting from an increase in capacity. But it noted that this is not just from startups.

Tim Foody, executive lines leader at the Gallagher-owned wholesaler broker, said that carriers that had previously pulled back from cyber markets are now reconsidering their positions as they hunt for premium growth.

“We are seeing some carriers return to some classes of business that they may have pulled out of in the past – like schools and manufacturing – and we also saw some entirely new entrants in the market last year,” he said in the report. “This is keeping the market extremely competitive from a pricing perspective, particularly in the SME space, and we are seeing some slight coverage expansion too.”

He added: “Many of these carriers are reassessing their books and realising that claim development wasn’t as severe as expected. Others see improved risk management controls or new endorsements that make certain segments more viable.

“If they’re not expanding with new buyers, they’re looking for opportunities in areas where they once played but now feel comfortable returning.”

Sompo’s DePiero said that new entrants have brought innovation for cyber insurance buyers. But he warned this is not always good for the market.

“The concern I have with innovation is that for many new entrants their approach often seems to be, 'Let me provide crime coverage or include coverage for risks that don't belong on a cyber policy – nor were properly underwritten.’ This has led to brokers performing their due diligence on quote comparisons and going to various established markets, asking, 'I found this coverage here; how can we structure something similar with your offerings?'”

DePiero said he has seen added coverage like e-crime, reputational harm and missed bid insurance, which introduce a lot of uncertainty into the claims process.

“That's not the type of innovation that we are seeking in our space,” he said. “The innovation we are looking for involves gaining deeper insights into the insured’s network, offering services to assist insureds identify and mitigate risk – such as tabletop exercises, pen tests and endpoint management solutions – and fostering stronger engagement with our insureds.

“To me, that is innovation, not, ‘Here's a quarter million dollars of crime supplement, and by the way, we didn't underwrite it, and this isn’t really our coverage but let’s put it in there anyway.’”

Also speaking at the Riskworld conference, Jeff Kulikowski, executive vice president of cyber and professional liability at Westfield Specialty, said that new excess capacity has continued to fuel rate decreases on excess towers, although they have at least slowed.

“You've got existing capacity that's growing beyond an existing $5 million or $10 million layer, in addition to new market entrants. There is a lot of new capacity, and where it's really affecting the rate is in the excess insurance space because that's usually the first point of entry just to get some premium scale,” he said.

“The only way for a carrier to really differentiate itself within excess layers is price, and maybe quality of the paper. There is less competition in the primary market because it takes time to reach premium scale, build claims and underwriting teams, and onboard the proactive risk management services necessary for carriers to provide a full-stack offering.”

DEMAND FOR INCREASED LIMITS FUELLING ENTRIES

Some executives interviewed at Riskworld suggested the new entrants could help meet a thirst for capacity among the largest buyers.

Christian Hoffman, global head of specialty and financial products at Aon, said that the recent new entrants are coming in during a time of softening rates, whereas those that entered during the hard market had benefited from strong rates and established players pulling back.

“There were a handful that were in there as other carriers were going from fifteens (in millions of dollars of limits) to tens, or from tens to fives. They were sneaking in there and at the same time getting outsized premiums,” he said.

But Hoffman said it is still an attractive market for new entrants.

“Yes, the premium base might be lower for those new entrants coming in a soft market, but there is still tremendous opportunity for them,” he said.

Hoffman said that a significant number of new buyers emerged last year while many existing buyers also increased their limits.

“Some were middle market companies that wanted to go from $5 million to $10 million, some of them were large enterprises that wanted to go from $100 million to $200 million. So that continues to fuel opportunity in our marketplace for those new entrants,” he said.

Hoffman said that Aon has a number of clients buying towers in the $500 million to $600 million range, and looking to increase that.

“Ultimately I think you could get $750 million, $800 million and growing as these new market entrants come in,” he said.

He added that the capacity has also been increased by some recent $100 million facilities out of London, as well as insurance-linked securities and increasing use of captives.

“Everybody has been talking for years about that billion dollars of potential capacity. Nobody's coming to us asking for a billion dollars, but we were building that capability to try to get there,” he said.

Rachel Lavender, U.S. and Canada cyber brokerage leader at Marsh, said her company potentially has clients who want a $1 billion tower.

“The market can probably bear $800 million, maybe $850 million and that's really pushing London, Bermuda and the U.S., maximising your attachment points, making sure you know where the global aggregation issues are for some of our multinational insurers,” she said.

While startups help to increase capacity available in the cyber insurance market and potentially also help provide broader coverage for buyers, large established players suggest that they can offer advantages over smaller ones.

Tony Dolce, head of professional liability and cyber at The Hartford, pointed to the breadth of his company’s coverage and the services it provides.

“We've invested quite heavily in making sure that we provide our customers with very fulsome types of policies,” he said. “Cyber is a little bit different from other policies. People expect more from an established carrier like The Hartford such as pre-incident services.

“People want to be prepared through having an incident response plan and having the carrier be a central part of that, because you have designated claims teams that handle ransomware attacks and other types of malware attacks day in and day out.”

He added: “You also want to make sure your coverage is robust, whether it's both first and third party, including things like business interruption, which is now the second shoe that drops after a ransomware attack, and just being able to bring to bear a full panel of service providers in case something happens.”