26 POLICY Special edition 2023 Cyber Insurance - Expectations, Reality, Future, and the Technological View By Kobi Bendelak, Insurtech Israel CEO The cyber insurance field has been attracting the attention of the insurance world for over a decade. There are many expectations from this developing insurance sector, given the growing need for insurance protections following the significant damages caused to companies and organizations worldwide from cyber-attacks as well as the evolving regulatory environment. At the moment, the cyber insurance field does not yet deliver on the expectations placed on it; sales volumes are lower than expected and the loss ratio is negative. In addition, cyber insurance has not yet positioned itself in the industry as a central coverage for customers and a significant portion of the premium is sold as part of insurance coverage packages and not as standalone insurance. This makes it difficult for the growth of the product and the positioning of the insurance coverage as a significant and important coverage area. Lastly, the penetration of cyber insurance into medium and small companies is very low and most policies are sold to large companies and organizations that are subject to supervision and obligation to purchase cyber insurance coverageThe reasons for the failure to meet expectations is the fear of insurance companies to deepen the penetration of cyber insurance due to several factors: Insurance companies fear the unknown risk. Fret of a long tail of claims and being left with high liabilities over time. * A growing fear of losses and abnormal risk acceptance. * Fret of insurance companies of the increase in threats and their continuous evolvement The above reasons caused a sharp increase in premiums and a tightening of conditions from 2021 due to the complexity of the risk and the involvement of many third parties. Distribution is another key issue - the market is controlled by large insurance companies, while small and medium sized insurance companies are concerned about entering this type of risk. These factors create relatively low competition with limited regional competition that characterizes other insurance products. In addition, insurance agents and brokers in the world avoid selling this insurance coverage as a routine because of knowledge barriers and a lack of encouragement from insurance companies that work with them to sell the product. From the perspective of the Insurtech world - this is a perfect opportunity for the Insurtech world to lead the penetration of a cyber insurance product. There is an acute problem in growth and an almost perfect solution from the technological point of view. On the part of the cyber insurance startups that are B2B, this is an opportunity for them to penetrate the insurance market and enable the execution of cyber underwriting for the insurers, which will allow insurance companies to get the right customers for insurance coverage and on the other hand to price the risk correctly. In addition, providing tools for continuous protection to customers that will reduce the constantly changing risk. All of these will allow the premium to be reduced to reflect the real risk, the entry of medium and small insurance companies into the field that will not be concerned of selling the coverage while strengthening protection capabilities, reducing the risk and hence the costs of the insurers The Insurtech sector can provide the data in real time data (unlike insurance companies that do not have both at the time of underwriting and during coverage) Dealing with trends and changes continuously and not just once a year. All of this will reduce the risk and apprehension of insurers to enter the field of cyber insurance and increase competition and deliver a significant increase in the rates of the insured, the premium and reduce the rate of loss ration significantly. In the B2C distribution channels, technology companies have a great place when it comes to market education, working with medium and regional brokers and insurance agents to distribute the product using their technology and as an independent distribution channel for selling insurance to customers based on their technology platforms In addition, technology companies are also involved in the development of new products in the field of cyber insurance, which are already increasing the sales share of cyber insurance in the world. First, parametric cyber insurance that has already been sold and is not new but can be sold in different configurations such as server failure insurance. Other options include Child harassment protection insurance, protection of privacy, protection of Continued on page 39
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