Allied World’s Stevens: Cedants retaining more risk as cyber rates rise

Rates in the cyber market are beginning to rise after a long period of softening, driven by an increase in the frequency and severity of cyber events, Allied World’s head of cyber Travis Stevens has said.

“Frequency and severity, quite frankly, are driving the rebound and the rate improvement, " he explained.

As a result of these rising rates, Stevens observed that cedants are retaining more risk.

"Insureds are opting for much larger retentions,” he said.

"I think the SIR [self-insured retention] increases that we're seeing across the board are just an indicator of this."

Stevens viewed this as beneficial for the industry, as insureds with more "skin in the game" tend to be more concerned with mitigating their cyber exposures.

"It's positive to see that they have skin in the game because we see ourselves as partners with the insureds, and we want to walk hand in hand with them on this journey," he remarked

Stevens also pointed to increased risk retention among clients as evidence that the cyber market has gone through a period of maturation.

"I think we've known for quite a while that cyber has been a maturing product, and we're reaching a stage now where, again, there is some maturity, there's some history, and there have been a lot of lessons learned, " said Stevens.

As part of this maturation, firms have become more discerning about the risks they are willing to underwrite.

"It's worth mentioning, on a positive note, that most companies are also sharpening their pencils. Risk selection, quite frankly, is stronger than ever."

A rise in rate can often signal capacity leaving the reinsurance market. However, Stevens is not concerned about this, noting that “ th ere is no shortage of capacity for those top-tier risks”.

Commenting on market dynamics, he added: “ There has been an evolution in the relationships between insurers and reinsurers, particularly in terms of openness and transparency.

"I think data sharing is now, in 2024, at a level we've never seen before, quite frankly. Folks are sharing lessons learned, and it's helping us, helping the reinsurers, and helping everyone price this risk much more accurately.”

Ransomware insurance: moving from damage limitation to prevention

Another trend that Stevens identified in the cyber market is the shift in how insurance companies are approaching ransomware risks. Following the boom in ransomware attacks in 2021, insurers are now more focused on preventing such attacks rather than just limiting the damage they cause.

"I think the shift from recovery and redundancy to resiliency has been really catalysed by the proliferation of ransomware, and it's a rare but positive change, quite frankly.

"No longer are we saying, 'When a ransomware attack happens, or if a ransomware attack happens, how can we get the systems up and running?' Now, the focus is on building and designing a resilient enterprise that can potentially protect, defend, and avoid these types of attacks from the onset," Stevens explained.

As a result of this change, Allied World now aims to hire underwriters who have a deep understanding of the product and can help clients mitigate their cyber risks.

“I think the only other point I'd add is that we've doubled down on our talent profile, and we've been really, really focused on hiring and recruiting underwriters that not only understand insurance but also have a strong understanding of, for example, network topologies and security frameworks,” said Stevens.

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