The cyber insurance landscape of today will not be the cyber insurance landscape of tomorrow. With that in mind, responsible insurers are already keeping a finger on the pulse of today’s challenges and working toward a sustainable future.

There is no shortage of cyber risk.

Across all industry verticals, as business becomes more interconnected and reliant upon technology, insurers will continue to contend with an advancing cyber risk environment. The rapid evolution of technology along with macro trends — inflationary pressures, the rise of litigation and geopolitical uncertainty — have led to an increase in both emerging and systemic cyber risk.

Given the perpetual change in the cyber environment, underwriting and pricing can have trouble keeping pace with shifts in the market. For carriers, the ever-evolving threat landscape has become a primary focus for underwriting, in order to create a more sustainable cyber insurance market.

Emerging technologies such as artificial intelligence present a series of new risks due to their many use cases and applications. “We have seen insureds go all-in on artificial intelligence in every business capacity imaginable,” said James Brogan, vice president, regional underwriting manager, Munich Re Specialty Insurance. “Underwriting has to become more dynamic to appropriately assess the exposures associated with the use of artificial intelligence. The business risks created by artificial intelligence are omnipresent. It’s an area that cyber underwriters are still discovering and establishing proper underwriting methods for,” Brogan shared.

A litany of lawsuits have plagued artificial intelligence companies, alleging copyright infringement, misuse of artificial intelligence, and unfair competitive advantages. Many of these suits are still filtering through the legal system. “We have to stay abreast of the regulatory landscape surrounding artificial intelligence — case law is still being established, and there is still so much to be determined on how we appropriately price with regulatory uncertainties,” said Brogan.

Despite the proliferation of emerging technologies, a sustainable cyber market environment is possible, but it has to start with the market leaders in the space. According to Brogan, the key to fostering a sustainable cyber insurance market lies in maintaining stable pricing structures and conducting rigorous risk assessments based on widely accepted metrics. The collective goal of the market is to reduce loss exposure for the product and create a cost-effective and valuable risk transfer solution for insureds.

According to Brogan, “Typically, as loss severity and frequency increase, prices follow a similar trajectory,” Brogan said. He believes this will have an impact on the long-term viability of and interest in the cyber liability product on the part of both insurers and insureds. 

Established insurers such as Munich Re are actively engaged in safeguarding the cyber market and fostering its sustainability through robust underwriting practices. Central to this effort is a focus on underwriting discipline, verifying that insureds have a clear understanding of their cyber insurance coverage and its associated costs over time. Moreover, prioritizing loss control is crucial for insureds, insurers, and the market overall.

The significance of responsible underwriting and dependable pricing in cyber insurance cannot be overstated. Seasoned carriers with skilled cyber underwriters play a pivotal role in this regard. Implementing comprehensive, meticulously crafted underwriting controls based on thorough risk assessments guarantees that insureds receive appropriate coverage at viable rates. As the industry refines its understanding of loss metrics and shares this data with underwriters, market stability becomes increasingly tangible.

Underwriters who possess the requisite expertise to assess risks comprehensively and tailor coverage and premiums accordingly are instrumental in shaping a sustainable market. Many insurers are proactively developing loss control platforms for their insureds, exemplified by initiatives like Munich Re Specialty’s Reflex™ risk management program, which offers primary insureds complimentary pre-breach loss control tools.

The cyber insurance market is at an inflection point. The rapid evolution of technology, the rise of artificial intelligence, and the increasing interconnectivity of businesses have created a complex and dynamic risk environment. This has led to a market that may prove unsustainable in its current form. The path to sustainability requires stable pricing structures, rigorous risk assessments, and insureds who have the assistance they need in managing their cyber risk. The cyber insurance market can adapt to the changing landscape and establish a sustainable future.

Leveraging the strength of Munich Re Specialty and the innovation of Lloyd’s, we offer tailored Cyber and Technology E&O insurance solutions on a primary and excess basis that combine technical expertise, risk management services, and responsive claims in support of a sustainable cyber insurance market. Learn more: https://www.munichre.com/us-non-life/en/solutions/specialty-insurance/cyber-and-technology-eo.html 

This article is provided for informational purposes only and does not constitute legal advice. It should not be construed as an offer to represent you, nor is it intended to create, nor shall the receipt of such information constitute, an attorney-client relationship. Readers are urged to seek professional or legal advice from appropriate parties on all matters mentioned herein.  This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Munich Re Specialty. The editorial staff of Risk & Insurance had no role in its preparation.