Asian cyber market needs local expertise: Guy Carpenter’s Cordonnier

November 7 2024 by

The Asian cyber insurance market needs to build local expertise to drive growth in the region, according to Anthony Cordonnier, global co-head of cyber at Guy Carpenter.

“Different countries have very different exposures, different ways to do business as well. So I think we need more local expertise to actually develop products that are relevant to local clients. And I think that will lead to a better take-up of the products,” he said.

For Asia, “I don’t think education needs to come from the outside. At this stage, I think there needs to be local underwriting teams in their markets actually looking at the risks,” he said.

At the moment if you look at Asia, the penetration is very low compared to more mature markets.

There has been a bit of standardisation around wordings and pricing in the cyber market in Asia, because it has been developed on the back of reinsurers investing into the region and bringing the outside knowledge.

Cordonnier said the cyber market is seeing rating reductions in the market following the sharp spike seen starting 2020, while there has been modest exposure growth.

“After quite a few years of hard market in cyber, there has been just a bit of a pause in the rating environment. The reductions, however, are at a much slower pace than the increase in rates we had in the preceding years,” he noted.

Cyber is a profitable class of business, still is, Cordonnier said, adding that however, in terms of products, we’re seeing that there’s perhaps not as much growth as there was in previous years.

“Exposure has not really grown so much in the last couple of years. You have rates coming down, the premium staying the same, which means that there’s probably a bit of exposure growth. So it could be new buyers or existing buyers buying a bit more. So that’s kind of offsetting the rate environment,” he said.

“This is modest growth,” Cordonnier said.

“Cyber was a longer tail line of business before ransomware, similar to casualty, shorter tail than casualty, probably a little bit shorter than financial lines as well. Whereas now, cyber is seen as a cat-exposed short-ish tail line of business.” Anthony Cordonnier, Guy Carpenter

The cyber reinsurance market is also reshaping as the nature of risks is changing.

“Cyber was a longer tail line of business before ransomware, similar to casualty, shorter tail than casualty, probably a little bit shorter than financial lines as well. Whereas now, cyber is seen as a cat-exposed short-ish tail line of business,” he noted.

“Once cyber becomes big enough in a cedent portfolio, then it warrants its own solution and that solution might not look like a casualty solution, especially because of the cats elements, we are seeing event-based covers, for example,” he added.

Rating environment
“Rates softening is a result of the traditional insurance and reinsurance cycle playing out here,” he explained.

“You had a market that was growing fast, that changed very rapidly in terms of exposure because of ransomware, which took everyone by surprise. Rates reaction was significant, was fast and there was a tightening in underwriting rules and limit deployment.”

This drew new players to the markets, which then created an environment where you had more capacity, which led to an easing of rates.

“Currently, there’s discipline in limit deployments, in underwriting and underwriting checks,” he said.

“Limits have increased again, but not as much as pre-2020. Now the market withstands much greater limits and I would say the average limit in the market is lower now than it was in 2019, so there’s a lot more balance,” added Cordonnier.

Ransomware
One of the key drivers for rating growth in the past was ransomware activity, which he said is still there but it has been priced in and that’s an exposure underwriters understand.

“Around privacy liability, where we’re seeing continued focus, especially in the US, in using privacy laws to go after companies. And that’s causing some of the tail in cyber, that’s where we draw the distinction between the US and and outside the US.

“In particular, around Asia where those privacy trends don’t really exist, cyber remains first-party, ransomware coverage,” he noted.

Japan, for example, where there is limited exposure to ransomware, the liability environment in Japan is very different from that of the US, so the losses in Japan come from commercial settlements of liability through so-called apology money.,

“This is different to the nuclear verdicts or social inflation-driven trends which don’t really apply in Japan or most of Asia for that matter,” he noted.

Regulations in the region have had limited impact, simply because the liability regimes are just culturally not as aggressive as the US.

Guy Carpenter’s cyber team has about 40 professionals globally in broking, analytics, wordings experts, cybersecurity experts, perils experts, and threat landscape experts.

“We build that practice that has all range of professionals supporting our client base worldwide. I think the true differentiating factor that we’ve got is local expertise in all the regions where we operate in Asia,” said Cordonnier.

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