Cyber insurance innovation suffering from stagnation

By Michael Loney April 25 - (The Insurer) - Gallagher Re CEO Tom Wakefield has called on cyber underwriters to grow demand for coverage as the market approaches an “important turning point”, with the reinsurance broker, stating that innovation in the cyber market has stagnated. Gallagher Re said in a report released at the end of March that the cyber insurance market “is uniquely positioned for exponential growth, but its success hinges on market consistency for policyholders.” The broker argued that the market made a misstep amid a surge in ransomware claims around 2019. This led to unprecedented rate changes, but also to underwriters looking to renew or write less business, with average limits dropping and support for MGAs being withdrawn. “This approach may work as a short-term fix, drawing from strategies used in other lines of business during hardening markets. However, this phase of the cycle is often marked by a lack of innovation,” the report said. As a result, cyber policy count fell as reduced cyber capacity was met with a reduced demand. “The takeaway is clear: sustainable, long-term risk pricing and helping clients to manage and mitigate cyber risk is essential to avoid repeating past cycles of instability,” the report said. Gallagher Re said that cyber results have been consistently strong for several years since the ransomware spike, with improved education around risk mitigation and prevention. “As a result, more insurers entered the cyber market and incumbents grew their existing positions at a higher level of rate, which led to original clients stopping buying as much coverage, largely because the product was becoming uneconomic.” Gallagher Re suggested that cyber turns out to not be a special class, but merely mirrors every other property class. The broker highlighted the current volatile cyber market growth, which ranges from 40% in 2022 to less than 10% in 2025, and juxtaposed it with a potential alternative, more sustainable, market that is more consistent and ultimately leads to higher growth. “To mitigate the steep peaks and troughs of hard and soft markets, we need a stable supply of capital and consistent demand,” the report said. The expected heightened demand following a significant cyber event may not emerge without an increase in investment and innovation into product design to ensure the coverage is sufficient for each individual client’s needs, Gallagher Re warned. “It is up to underwriters to seize this opportunity to develop more bespoke, tailored solutions for clients today to help drive down the protection gap,” the report said. Gallagher Re also said it is imperative for all industry stakeholders to be aligned now rather than reacting post-event. This will build confidence in tail-risk scenarios. A ‘TURNING POINT’ TO REDUCE VOLATILITY Gallagher Re CEO Tom Wakefield picked up this theme in a speech at the Zywave Cyber Risk Insights event in London in April. Wakefield called on cyber underwriters to grow demand for coverage with capacity continuing to expand. He underlined the importance of building a sustainable cyber insurance market. “We at Gallagher Re truly believe that we’re at an important turning point in the relatively short history of cyber underwriting,” he said. “We believe that, with the right approach in terms of underwriting, product and operational investment, we as an industry can help drive down the volatility associated with this line of business, and consequently build a more sustainable, growing cyber market.” Volatility of the cyber class has hampered growth in the past, with Wakefield characterising the market cycle as “boomier and bustier than most”. Wakefield described cyber insurance market conditions in 2022 as a collective market failure, as underwriters sought to write less business rather than renewing expiring aggregates, which would have otherwise exceeded agreed premium business plans. “Collectively, we as a market failed. Instead of growing exposure, we were actively encouraged to shrink it. A once highly innovative cyber market began to stagnate and continues to see a slower pace of innovation today, more than three years later,” he said. He warned that if rate continues to deteriorate in 2025, even modestly to meet premium targets, the market is in danger of “chasing itself down”. “Growing demand is as crucial as expanding capacity. History would suggest that after a significant event in any line of business, interest in purchasing covers increases, but this surge in demand is not guaranteed,” he continued. Wakefield pointed to the entry of some reinsurers into the terrorism market following the 9⁄11 attacks, as well as the ‘class of 2005’ reinsurers that offered catastrophe capacity after Hurricane Katrina, as key historical examples where carriers that leaned into a market where others withdrew reaped financial and reputational advantages. “We need you in the underwriting community to seize this opportunity to develop more bespoke, tailored solutions for clients, to drive down the protection gap,” Wakefield said. He added: “Forming an accurate view of the market’s future profitability requires carriers to take a long, hard look at their pricing adequacy, loss trends and changing dynamics.” In March Gallagher Re also launched a risk-adjusted rating index for cyber reinsurance. The index’s value at the start of 2025 was double that at the start of 2020, although this was down from the tripling in value as of 2023.