Insurtech companies that combine cyber insurance and technology expertise are in the right place at the right time as they fill the growing demand in the space, experts say.
To date, there are only a handful of managing general underwriters that also provide cybersecurity services. But more can be expected as venture capital firms, their primary capital providers, keep showing interest in investing in the sector and more companies, particularly small to medium enterprises, seek out their expertise.
Observers say the firms are particularly attractive to SMEs, which may not have risk management departments and would welcome the simplified application forms, ease of coverage and expertise the firms offer.
The MGUs’ ultimate fate, however, remains unclear, including whether they will continue to operate independently, become acquisition targets or grow large enough to become acquirers themselves.
They may also expand into other areas, including directors and officer liability and excess casualty, say some experts (see related story).
“They’re emerging because there’s been a gap between the provision of cybersecurity and cyber insurance, and bridging that gap has not been easy, certainly for incumbent insurers today,” said Ben Beeson, Washington-based founding member and head of insurance at Arceo.ai, which provides cyber risk analysis.
One simple reason why, he said, is because “those in the cyber insurance industry are not cybersecurity experts, and those in the cybersecurity industry are not cyber insurance experts, and traditionally the two industries approach risks in different ways.” Cybersecurity experts approach risk from “a more technical stance,” while cyber insurance approaches it from a financial standpoint, and the buyer “needs help from both industries,” said Mr. Beeson.
“They’re being formed because people see a potential opportunity to build a better mousetrap,” said Robert Parisi, New York-based managing director and cyber product leader for Marsh LLC, adding, “We’re going to have to wait a couple of years” to see whether that will happen.
Because cyber is still a burgeoning risk class, incumbent insurers are not in a place that puts them “in a better position relative to their technology peers,” said Andrew Johnston, New York-based global head of insurtech for Willis Re, the reinsurance division of Willis Towers Watson PLC. In addition, because the nature of cyber risk threats changes so quickly, and there are so many data points that influence the risk, it is “very hard” to evaluate the risk using static data, while technology-oriented firms can capture “dynamically moving data,” he said.
The insurance industry is beginning to open up to startups that can bring in innovative technology, said Rotem Iram, founder and CEO of Mountain View, California-based At-Bay Inc., one of the firms.
There are two major opportunities, he said. One is to “rebuild the delivery model,” moving away from the old way of quoting insurance, which involves sending emails back and forth, and instead rapidly delivering customized quotes directly online “with a machine instead of a human underwriter.” The other is to help brokers by providing risk management advice to their customers, he said.
“They’re doing a good job of building insurer-friendly platforms,” said Matt Chmel, Chicago-based team leader of Aon PLC’s professional risk solutions team. “We have a growing relationship with some of them. With some of them, we are still evaluating their capabilities, their policy forms and their claims payment history” and may or may not “get involved with them in the future,” he said.
Insurtech MGUs particularly seem to have value in the SME sector, where firms often do not have the time to go through a lengthy underwriting process, Mr. Parisi said.
If the MGUs allow SMEs to better evaluate their cyber risk quickly and cleanly and turn around coverage, “that’s going to be very attractive,” he said.
More competition in the hybrid space will emerge as long as the venture capital funds that are largely backing the enterprises remain interested, say observers.
“I think we’re going to see the next generation of these emerging in the next six to 18 months,” said Anthony Dagostino, New Yorkbased global cyber and technology practice leader for Lockton Cos. LLC.
But while more competition will emerge, “I don’t think many will get traction,” said Joshua Motta, co-founder and CEO of San Francisco-based Coalition Inc., one the hybrid firms. “It’s an extraordinarily competitive marketplace for startups in general,” and when incumbent insurers with their capital and many employees are considered, “it’s a difficult space to play in.”
Mark Synnott, Chicago-based global cyber practice leader for Willis Re, said one factor that may inhibit such operations’ growth is insurers are “acutely aware of the potential for aggregation exposure.”
“I think that will act as a brake on the expansion of the MGUs,” he said.
Meanwhile, “A lot of the large insurance partners we are working with are working to develop similar technology in terms of quoting platforms in the SME space,” said Mr. Chmel.
Their outlook varies, say observers.
“There will certainly be acquisitions of insurtech companies, and a few companies will grow, prosper and remain independent,” said Phil Edmundson, founder and CEO of Boston-based Corvus Insurance Holdings Inc., an insurtech MGU that focuses on larger firms. “At this stage, we see nothing but independence in our future.”
“Our goal is to keep going, to be a big bear in this market,” said Sidd Gavirneni, co-founder and CEO of San Francisco-based insurtech Zeguro Insurance Services LLC, which focuses on the SME market.
