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5 predictions for cyberinsurance in 2021

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The start of a new year is a great opportunity to reflect on changes in the past 12 months and to predict what lies ahead in the next few months. As we can see a distant end to this difficult time, it is time to rethink the future of the world.

In a recent Accenture consumer survey, we found that 67% of consumers expect companies to “better recover” from the recent crisis by investing in long-term, sustainable digital solutions. More than half of employees who have never worked from home before want to do so more often in the future. Furthermore, nowhere has the resilience, speed, and adoption of digital solutions come faster than in small businesses that survived and thrived in 2020.

However, with these new digital capabilities come new risks. Digital safeguards are becoming just as important, if not more important, than physical ones. To understand what these risks mean for the cyber insurance market, we partnered with CyberCube, a leading provider of cyber insurance analytics, to research the market.

The recent switch to digital solutions as a result of the pandemic is well documented. The dramatic shift to work from home has fundamentally changed the way we think about our work environment. The effects of this change on the cyber risk landscape were diverse. In addition to existing trends such as the ongoing explosion of ransomware and the increasing management of remote workers, 2020 was marked by a number of significant events in the world of cyber risk including the Twitter violation, the Magento hack and the Solarwinds hack in near the end of the year, which is perhaps the most important of all. (Later more.)

With the world of cyber insurance at the intersection of insurance and cybersecurity, it is important for insurers in this area to be proactive, especially as the risk landscape can change so quickly. With this in mind, Accenture and CyberCube have worked together to highlight trends and projections to look out for in 2021. Some are incremental while others could signal a significant change in our market.

1. A hardening market

The hardening market in the insurance industry gained momentum in the second half of 2020. Dust is still settling in the January 1st renewal season, but it’s clear that the cyber (re) insurance market has seen rate hikes and a tightening of capacity and conditions. The impact inevitably varies by segment, with those companies that have suffered losses being particularly adversely affected. The loss history of the last few years has shown that shifts with a high excess in large programs are no longer perceived as outside the burning shift. As a result, capacity for this segment has shrunk, forcing many more participants to approach the required limits, often at much higher prices.

With prices soaring, there have been some cyber-specific market trends that are likely to accelerate rapidly in 2021. Coverage restrictions, sub-restrictions on terms, or even exclusions from certain threats (especially given the ongoing ransomware problems) could make it more difficult for brokers to take some risks. There was even talk of exclusions related to certain events like the SolarWinds hack.

A silver lining in the hardening conditions is that companies that demonstrate a strong culture of proactive risk management and effective cybersecurity controls in a holistic manner benefit from relatively better market conditions. There is an increasing distinction between companies that are consistently performing well and companies that are behind the curve. Underwriters are more sophisticated than ever when it comes to risk selection and have more data to identify cyber hygiene best practices. Security signals can measure indicators of cyber maturity and reward companies that have strong cybersecurity practices.

2. Price convergence

As the cyber market matured, actuaries were hired to review portfolios with increasing focus. As individual underwriters and teams have moved between different market participants, the previous volatility of price variance has decreased. A growing consensus has emerged about the most dangerous and industry-leading risks when priced appropriately. In recent years there have been significant price differences for the same risk – sometimes by an order of magnitude. Overall, there will be a growing market consensus in 2021 about which prices are appropriate for a given risk. Competition will continue to be intense, with an increased focus on policy language, end-to-end risk management services (both pre and post loss) and claims handling experience.

3. Technology transformation

The technology associated with the Internet and networks, along with the associated risks, will continue to increase dramatically. The hyperconnectivity of 5G networks will become mainstream in 2021 and this will enable much faster and more reliable transmission of data and malware. This marks the end of what is commonly understood as “network scope” and makes it difficult to defend corporate networks. The Internet of Things will also increase its presence as both consumer applications and advanced industrial applications are widely adopted. The ongoing transition to cloud computing will increase our dependence on a small number of critical platforms in space.

4. Growth of attack vectors

The SolarWinds attack in late 2020 showed what cybersecurity is all about. It showed the potential impact of nefarious government-sponsored hackers on up to 18,000 companies affected by this malicious software update, including several US government agencies. This attack exposed the interconnectedness of the technologies and the trust placed in a small number of critical suppliers. So far it seems that the motivation has been espionage rather than crime, and while the financial consequences of this event are still unclear, it has offered a window into the future. The attack surface continues to grow dramatically, and this trend will accelerate in 2021. This will reveal weaknesses in supply chains, ubiquitous software used in multiple industries. As always, the weakest point in a network will be the entry point for automated attacks.

A focus on accumulation

It wasn’t long ago that the need to manage the potential risk of accumulation in the cyber insurance market was seen as a luxury or an academic pastime for the curious. There have been several incidents over the past three years that have shown that the problem is no longer a theoretical possibility – it is an urgent problem. The regulatory focus of PRA, Lloyd’s and others has also increased in the recent past. In 2021, it will be widely recognized that a rigorous and structured approach to managing cyber risk accumulation is a requirement and a necessity for air carriers. Young deterministic insurance models are supplemented and / or replaced by additional data sources and modeling functions in order to obtain a better insight into different portfolios. A better understanding of the potential accumulation points enables a more proactive approach to addressing and improving capital management efficiency. This will help enable greater diversification and resilience to withstand potential accumulation events.

The role of the insurer

Insurance companies must adapt to the rapidly growing digital world by not only selling or charging more cyber insurance, but also by building better cyber insurance capabilities.

In our view, airlines need to focus on three main issues in 2021:

  1. Reconsider your key drawing practices and look for ways to add new data sources and insights to existing analytics and achieve a better risk assessment against current and emerging threats.
  2. Expand enterprise risk management capabilities that support cyber businesses. Cyber ​​risk insurance has become increasingly complex and the traditional diversity by industry or region does not provide protection against cyber threat CAT vectors.
  3. Develop more active risk protection. Cyber ​​threats, such as those caused by major property and liability incidents, can benefit from solutions that work with customers to reduce risk. Find out about in-house or vendor-based solutions to support your customers with services that reduce their exposure to cyber risks.

While this list is not exhaustive and the type of insurance means that we will no doubt deal with unexpected events or events on the left, awareness of these significant trends will help us in the year ahead.

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