Earlier this year, the reinsurance market welcomed the first-of-its-kind innovation in the formation of CyberShock, a cyber catastrophe consortium. The new entity, created by Hiscox Re & ILS and Ariel Re, looks to provide up to US$50 million per program to support cyber insurers globally, promoting a healthier and more sustainable cyber insurance ecosystem.

Discussing the launch of the consortium, Conor Husbands (pictured), Senior Cyber ​​Underwriter, Hiscox Re & ILS, noted that it has found its roots in addressing the long-standing challenge facing the cyber market.

“On the one hand, there is increasing demand from clients, from assignees, to shift reinsurance purchases from being on an aggregate basis to being on an occurrence basis,” he said. “On the other hand, there are no suitable products available to meet that. Our belief, and Ariel’s belief, is that the current product range and current attempts to meet demand are not yet fit for purpose. We have wanted to address that for some time.”

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The pairs highlighted how Hiscos and Ariel share a strong electronic lineage, with the former having been writing unrivaled electronic products of all kinds for a decade now, being one of the first to launch its electronic product range in 2014. Additionally, he said Husbands Hiscox developed the market’s first electronic ILW (Industry Loss Warranty) product and the first border transaction.

Meanwhile, he said that from early conversations with Ariel, it became clear that the company was already well advanced in developing the contract language at the heart of drafting CyberShock, so the alignment of ambition between the companies was clear from the start. Ariel has already begun putting pen to paper in terms of product development and, like Hiscox, has demonstrated its willingness to support the product with significant capacity.

“We believe this will be crucial in attracting customers,” he said. “Our combined capacity offering for this is $50 million per program, which is a really meaningful amount, in the context of cyber insurance.”

The final piece of the puzzle for Husbands and his team was the caliber of Ariel’s team – which has an extensive background in cybersecurity and a strong understanding of the risks behind it.

Who is CyberShock targeting?

When launching CyberShock, Husbands highlighted that it was designed for positive cyberpunk writers. It offers up to five custom coverage heads, although clients can customize this to suit their portfolio needs, and is designed to protect clients from a wide range of specific cyber risks, he said.

“By designing it this way, we hope we can capture the major catastrophic risks that could impact their portfolio,” he said. “This includes disruption of a software service or hardware supply chain, malware spread, widespread exploitation of a zero-day vulnerability and cloud service outages, among a number of other things. We really try to identify the underlying cyber risks that customers face, and deliver a product that enables them to move them.”

For Hiscox and Ariel, the product’s strongest selling point – and the primary reason they created it – is the certainty of coverage it can offer the market. For some time, with the online market redundant with losses, Hiscox has seen a lot of attempts to insert victim-style language into an online product, he said, which he feels introduces too much ambiguity into the workings of the product. This in turn risks leaving it completely open as to which risks are covered and which are not, as well as how losses are aggregated in the treaty.

“It is really important to us that clients, as well as reinsurers, do not face the threat of a costly dispute over coverage after a loss,” he said. “They need to know exactly when the protection we provide will or won’t respond. That’s what we’re trying to achieve with CyberShock. There’s a big difference in our mind between broad language and broad coverage. We’re trying to avoid the former and provide the latter.

While the element of certainty in coverage is the product’s main selling point, not least because of the question it raises about how some other products on the market would respond to a major event, Husbands noted that there are a range of benefits from this multi-stakeholder consortium.

For example, he said, the trailing points the product can support are much lower than traditional gross products — which often see retentions much larger than 100% of gross income. By contrast, CyberShock ensures that customers can, in principle, recover from the product without suffering a net loss because the consortium is willing to accept somewhat lower retentions – an important selling point for customers concerned about product retentions.

The hope is that CyberShock will help grow the market by attracting more buyers and enabling more clients to transfer some of the risks that the reinsurance market can bear, Husbands said.

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