Advisen

London bets on cyber insurance as key growth area for the future

By Erin Ayers, Advisen

The City of London plans to position itself as a cyber insurance hub over the next five years, according to a new report that identified the sector as a promising source of growth.

“The COVID-19 pandemic has accelerated technology transformation across all industries and entrenched the structural shift from the physical to digital. The risks of cyberattack, already significant pre-pandemic, now stands as one of the greatest risks to the world economy and the ‘new normal’ of post pandemic life,” The City of London Corporation and Accenture wrote in their report. The London market has become a key player in the global cyber insurance market, they noted, with one quarter of the world’s cyber premiums written through Lloyd’s of London.

Economic costs of cybercrime are likely to reach to $5.2 trillion in the next five years, with cyber insurance an increasingly popular way to mitigate some of the losses to organizations.

“As business activities transition to unexplored and less secure territory, the importance and relevance of insurance in cyber security will only intensify,” said Accenture and the City. London has the underwriting expertise, regulatory structure, capital, and innovation needed to lead cyber insurance into the future, the report asserted, dismissing North America, Bermuda, Zurich, and Hong Kong as potential hubs.

“None of these locations have the scale of the insurance market that is present in London,” the authors said. London does face some challenges on the road to cyber dominance, however, the report noted. The market in the U.S. is further along in maturity and has a good relationship with London, but future areas of growth are likely to be in Europe, Asia-Pacific region, and Latin America.

“An obvious difficulty will be that these markets may have less historic connection to the London Market, preferring to place business locally,” said the City. “Making London the natural location for providing these clients with cyber insurance will require proactive outreach from insurers and brokers.”

Other regions are rife with innovation as well – Singapore has created a cyber risk pool with 20 insurers coming together to offer bespoke coverage and up to $1 billion in capacity.

London – and cyber insurance in general – also face a “trust gap” between cyber insurers and clients, one that may be unearned and driven by media mischaracterizations of coverage, but it is a barrier, nonetheless, according to the report.

“The complex and unpredictable nature of cyber risks not only pose difficulties for insurers underwriting the risks but also to insureds who may not have full confidence that they will receive compensation after an attack. This doubt may undermine the clear business need for cyber insurance in the market,” said the City.

To combat the challenges and pursue cyber insurance as a growth engine, the report highlighted setting standards and data-sharing as initiatives for the future, as well as investing in cybersecurity talent and resilience.

Editor Erin Ayers can be reached at eayers@advisen.com