Howden’s Simkin: Cyber attribution must not become obstacle in claims payments

Howden’s global head of cyber Shay Simkin has warned that the process of attributing a cyber event to any one nation or group remains “virtually impossible” in a new interview with The Insurer TV.

But Simkin said this must not become an obstacle when it comes to claims payment, particularly for SME clients where a payout may be the difference between staying afloat or not.

Speaking following the publication of Howden’s Cyber: Coming of Age report, Simkin called for brokers to “lead the way” in ensuring that attribution issues do not stop the payment of claims.

Simkin warned attribution-related court delays could be “hugely significant” for SME clients, whose main motivation for cover is often getting paid quickly.

“Attributing a cyber event to a nation or to any group is virtually impossible. We need to lead the way so that attribution will not be the obstacle to paying a claim,” he said.

“The insurance industry owes our clients a duty of transparency and clarity, a duty that the initially confusing war exclusions failed to meet,” he added.

In their initial form, Simkin said the war exclusions were “not clear enough” as “clients struggled to understand what the barriers were”.

The executive stressed that brokers need to be clear with their clients that war exclusions will be commonplace across every type of policy following Russia’s invasion of Ukraine.

“We have to explain to our clients that cyber war exclusions are there in every type of policy following what has happened after the Ukraine-Russia war. Things need to be amended and changed to make sure that things are in line with what they think is right and the cake is not yet baked,” he said.

Simkin’s comments follow the troubled roll-out of Lloyd’s tougher stance on cyber coverage wordings in March.

In June, Lloyd’s chief of markets Patrick Tiernan acknowledged the market bulletin on state-backed cyber attacks and their exclusion from standalone cyber policies “had not been elegant” with a “more definitive approach” to be taken.

Reinsurance of “vital” importance to growth, but will decrease

Simkin said the reinsurance market’s increasing participation in cyber is vital to the sector’s growth, with 45 percent of premium currently ceded to reinsurers.

However, he said this percentage was likely to decrease as primary insurers gain more confidence in underwriting the product.

“Over time, we think that this will decrease and it will decrease because we will have more confidence in the way we underwrite the product and the claims that we pay,” he said.

Simkin said reinsurers were more confident following the pricing correction in the market, which has been demonstrated in the capacity that has since entered the segment, as well as an adjustment in underwriting criteria to more rigorously assess clients’ cyber hygiene.

“All of this is giving a lot of confidence to us, to the market, to the reinsurance market and I think it's helping our clients be much, much more protected than they were before,” said Simkin.

But to ensure the cyber product remains sustainable – or perhaps more accurately, affordable – this has since been adjusted and the market has seen pricing taper off somewhat.

“There was a price correction over the last few years, but we needed to adjust the price to make sure that the product is sustainable in the long run,” he said.

Concentration of risk manageable

While Simkin said that cooperation between governments and industry is critical, he was not convinced that regulators need to step in to manage cyber concentration risk.

“I think that the concentration over time will go down. The better we manage the risk and the more capital coming from reinsurance will help us manage that, but I doubt that [regulators] will come in and regulate it,” said Simkin.

However, while he felt insurance would become better at managing large, systemic risks over time, Simkin underlined that the absorption of large risks was not only a job for the market.

In a call to action, Simkin added: “The insurance industry has shown leadership on those subjects. It's time for the governments to step in and collaborate.”

But Simkin is very optimistic about the future growth of the class, which he said was unrivalled.

“This market is growing 30 percent year on year – it's amazing,” he said.

“When you look at other types of insurance, it doesn't even come close. So everybody wants to be in the cyber market today and if we get it right, I think that we have a green, a very bright future ahead of us,” he concluded.