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Strength in Numbers: How Cyber Insurers Can Improve Their Market View

Author: Eduard Alpin

The law of large numbers is one of the statistical underpinnings of all insurance operations. Simply stated, the law posits that the more data you amass, the more confident you can be in your projections of future outcomes.

In the still-nascent world of cyber insurance, many insurers simply lack the broad-based, credible, and relevant data assets that undergird strategic planning, portfolio management and product development. It's not that this data doesn't exist, it's just that it's been decentralized and dispersed among individual companies and stakeholders, robbing it of much of its potential for predictive power. Rather than access a more complete picture of the cyber risk environment, many insurers and market participants are forced to peer through the data equivalent of a keyhole.

This pinched view of the cyber landscape can have significant real-world implications. Consider an insurer evaluating the results of their (hypothetical) cyber portfolio. Let's say they focus in on loss ratios for companies with revenues above $1 billion and discover that they have a 0 percent loss ratio. Looks promising!

But let's also stipulate that the carrier is actually writing just $5.9 million of the total $320 million in premium in this market segment (again, hypothetically). If our overly confident carrier restricts their view to only their own results, they'd miss the fact that on an aggregated, industry-wide basis, the $1 billion-plus segment of the cyber insurance is actually quite volatile. In fact, if they were to enlarge their view to include the $320 million in total premiums available in the industrywide results, the loss ratio isn't 0, but 82.5 percent. Suddenly, our carrier is looking at a totally different picture. Had they pursued this market segment based solely on their own data, they could potentially have put the profitability of their portfolio at risk.

What's typically true for traditional insurable loss exposures can hold for cyber risks as well: It's only when comparing individual experience with the overall industry results that you can achieve a more credible view.

A growing market needs data

While the COVID-19 pandemic has disrupted business-as-usual across a huge swath of the economy, cyber risks continue to multiply unabated. The need for cyber risk transfer solutions remains as urgent as ever—a trend that's underscored by the growth of cyber premiums. Indeed, according to ISO MarketStance, direct written premium for cyber policies (standalone and packaged) is projected to reach $6 billion in 2020.

To capitalize on this market growth, cyber insurance professionals need a centralized source of data. The Verisk Cyber Data Exchange was built to help stakeholders access this wider view, with all the predictive benefits that data can bestow. The Verisk Cyber Data Exchange is the industry's chief source of contributory aggregated cyber insurance data—and it's growing larger and more powerful through the recent additions of several new members.

Recognizing the pressing need for a centralized source of critical cyber business intelligence, companies are joining and contributing to the Cyber Data Exchange to help sharpen their insights into the growing market for cyber coverages. As of August 2020, the Cyber Data Exchange contained significant assets including:

  • 1 million transactions
  • Over 100,000 policies
  • Over $300 million in premium
  • Over 1,000 claims

Exchange participants can access these and other data points through interactive dashboards. More importantly, the Cyber Data Exchange provides the critical mass of data needed to help insurers, MGAs and other market participants leverage the key insights that are only available when viewing a broad cross section of cyber market data. Isn't it time you put the law of large numbers to work for your cyber portfolio?

To learn more about the Cyber Data Exchange and how an insurance carrier can participate, please visit our website at verisk.com/cyberexchange or email me at eduard.alpin@verisk.com. 

Last Updated: October 30, 2020

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