Nov. 28, 2022 — SELF-INSURANCE is becoming more and  more appealing to some businesses that need cyber insurance because of tight underwriting rules and increasing rates.

“With the hard market, with premiums going up and continuing to go up — even now we’re seeing 25% increases after two corrections last year — more and more clients are starting to consider self-insurance,” said Jack Bottomley, senior consultant at KPMG, during the professional services firm’s insurance conference in Toronto earlier this month.

The rate increases and tighter underwriting were both necessary, he said, because the number of cyber incidents — particularly ransomware attacks — has risen dramatically over the past few years.

Making matters worse, underwriters had previously asked for very little proof of good cyber hygiene from potential clients, which led to poor loss ratios for insurers.

Mr. Bottomley said insurers should be looking at how they can provide additional value if they want to avoid self-insurance becoming the primary form of coverage for the cyber market.

“Insurers demand a lot from their clients and now clients and brokers should start demanding more of insurers, to understand the risk and apply a risk-based approach and reward good behaviour.”

He said the cyber market is currently dominated by a few insurance players and there is room for competition to make sure clients are presented with the best options.

There are also opportunities for insurers that are looking to provide value-added services and create secondary sources of revenue through risk mitigation offerings, Mr. Bottomley said.

Insurers should also be prepared to say no to potential clients that are not managing their risk properly. He said that while that might be painful in the short term, in the long term it will  drive better behaviour..

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