Reframing Cyber Risk: Howden Re advocates for increased market engagement


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London, 9 May 2024 – Howden Re, the reinsurance and risk advisory arm of the Howden Group, has unveiled insights into the cyber (re)insurance landscape, noting that the consistent undercurrent of perceived imminent digital disaster overshadows a realm of untapped potential. The report urges a shift towards a more balanced view of risk between cyber versus other classes of business. It suggests a more nuanced approach to cyber exposure management is needed, with data indicating that the industry could, and should, bear more cyber risk than it currently does.

The report, Re-framing cyber risk: navigating threats and embracing opportunities, utilises data from cyber underwriters’ modelled losses, providing a first-of-its-kind comparison. A striking imbalance is highlighted: while perceptions of heightened systemic risk within the cyber class have been persistent, contributing to underwriter caution, the rewards offered by the class are often underestimated relative to natural catastrophe exposure. Furthermore, whilst carriers generally have developed methodologies to measure and set risk tolerances in isolation of one another, there has been little insight into peer practices. Howden’s report seeks to shed light on market risk tolerance, with the average carrier projecting an 11 percentage point deterioration in their combined ratio from a 1:200 cyber event.

Luke Foord-Kelcey, Global Head of Cyber, Howden Re, commented on the report’s insights: “Cyber risks consistently top the rankings of risk managers’ concerns. To stay relevant to those buyers of insurance, as an industry it is imperative that we embrace this class of business. This report identifies how carriers may assess their appetite for the cyber class of business to ensure they recognise the extent of the opportunities within the context of a more thorough understanding of the risks.”

Howden’s data show larger carriers assume a disproportionate amount of nat-cat risk when compared with cyber, even though nat-cat historically produces more significant losses – both in economic and insured terms. By contrast, cedents with relatively smaller balance sheets are often markedly more exposed to cyber as a percentage of business mix, with several establishing themselves as leaders in this rapidly evolving market. 

The report concludes that with continued investment in expertise, modelling and analytics, (re)insurers can expect a more favourable and diversified risk-return profile from cyber reinsurance underwriting.

David Flandro, Head of Industry Analysis and Strategic Advisory, Howden Re, said: “The maturing of the cyber market necessitates a thoughtful recalibration of how cyber risks are underwritten. A transition is necessary: from viewing cyber threats through a catastrophic lens, and instead recognising the competitive advantage that can be gained through more nuanced and informed risk analysis.”

Foord-Kelcey added: “Investing in cyber-specific expertise and leveraging refined risk models are key to navigating the complexities of cyber threats effectively,”. “This approach will not only transform perceived vulnerabilities into competitive advantages, but also enable our clients to capitalise fully on the burgeoning opportunities in today’s digital landscape.”

The Howden Re report serves as a clarion call for the (re)insurance industry to recalibrate its approach to cyber risk. By advocating for a shift towards a more balanced and informed underwriting strategy, Howden aims to spearhead a movement towards greater assumption of cyber risk, backed by rigorous analysis and strategic foresight. As the market landscape evolves, this shift could redefine the industry’s role in shaping the future of cyber resilience and security.

Read the full report here (PDF)