By James Bullock-Webster, Head of Tech, Media and Cyber, New Dawn Risk
In the face of a continuously difficult cyber insurance market, the coming year will see buyers looking for alternative risk transfer solutions, with captives topping the list.
The cyber market has continued to harden throughout 2021. Rates have been increasing substantially, anywhere between 40% and 200%. Meanwhile, carriers are routinely dropping their limits by as much as half and maintaining the same premiums – in effect doubling rates.
Whereas we used to see a lot of single carriers taking a primary limit of $10 million – as recently as 18 months ago – that is now a thing of the past. Today, $5 million is the absolute maximum an insured will get from any single carrier.
Meanwhile, limited capacity is creating significant disadvantages for first time cyber buyers or businesses wanting to move to London, as insurers are reaching their premium income allocation just by their renewal book.
As we kick off the new year, the outlook isn’t looking much brighter. The general consensus in the market is that the hardening is going to be here for two more years. 2022 is just going to get increasingly more difficult.
Although syndicates will have reloaded on January 1, providing an opportunity to write more business, they will probably be reluctant to come out the gate running; if they end up overshooting their allocation, they will have to put their pens down part-way through the year.
In the coming year, we will reach a point where some larger clients no longer see the value in transferring their exposure to the insurance market. They will decide the time has come to self-insure by setting up a new, or extending the use of an existing, captive – a wholly owned subsidiary created to provide insurance.
While setting up a captive has historically been a realistic option solely for large multinationals, due to the significant cost involved and collateral requirements, the increasing availability of cell companies is opening up captive solutions to a wider world. The lower barriers to entry involved with cell captives mean a simplified and more cost-effective alternative.
Companies of all sizes looking for cyber insurance will no longer be at the mercy of fluctuations in appetite and rate and will opt to figure out alternatives themselves.