This according to Jean-Paul Huby Klein, Associate Director for Insurance Ratings at S&P Global Ratings, who commented on the prospects of the nascent cyber market in a recent webcast.
Huby Klein noted that the global economic threat posed by cyber risks is growing rapidly, with overall losses now estimated at around $600 billion every year, up from just $100 billion in 2014.
This is resulting in an increased demand for insurance protection, but with cyber re/insurers covering only $6 billion of total economic losses in 2018, the protection gap still presents a major challenge.
Part of the difficulty in tackling this lack of coverage stems from the still underdeveloped modelling capabilities of re/insurers in the cyber space, as well as the lack of relevant historical data, due to the changing nature of the threat.
However, Huby Klein argued that the current shortfalls in risk knowledge are precisely what is making cyber such a profitable sector for many companies.
He suggested that the fledgling market benefits from a kind of “uncertainty premium” that will likely begin to decline as clients gain more awareness and insight into the true nature of cyber risks.
Profitability has been exceptionally high in the cyber space recently, with the US market reporting a combined ratio of 70% for 2017-18.
This can be attributed to a relatively low amount of claims, Huby Klein said, as well as an uptick in coverage demand following the numerous high-profile cyber events of the last two years, such as the NotPetya and WannaCry attacks, and the Marriott data breach.
With regulators now ramping up fines following the implementation of GDPR and other measures, the incentive to secure insurance protection is even higher, he noted.
Despite this growing demand, S&P believes re/insurers are still taking on cyber risk at a cautious, sustainable pace and remain cognizant of their exposures.
Munich Re, for example, is one of the companies with the largest share of the cyber market, having reported cyber premium of $473 million in 2018.
But this figure represented less than 1% of the reinsurer’s overall gross premiums, a fact that Huby Klein believes may reflect ongoing uncertainties around model building and the need to clean up silent cyber risks in the portfolios of most companies.
Global cyber insurance premiums stood at $5 billion in 2018, but could reach $8 billion by the end of 2021, according to S&P.