Cybercrime and crisis insurance products to boom in coming years
Insurance against a range of risks in the political risk and crisis management space are set to boom in the coming years, after a period of lacklustre profitability growth within the market. Particularly cybercrime insurance, already the single largest segment, will see continued strong growth of +20% per annum to 2018, followed by insurance products for product recalls.
Threats from a range of actors, from terrorists to organised crime and cybercrime syndicates, remain a bane for people and businesses around the world. The insurance industry has, for centuries, sought to take the edge of a variety of risks by providing a range of products that cover potential losses from contingencies.
According to a new analysis from KPMG, the recent relative stall within the Political Risk and Crisis Management insurance market is not likely to stick around forever, even while things will remain relatively flat over the coming year. The analysis, titled ‘Political risk and crisis management insurance’, considers market trends as well as a way forward for market participants.
The phenomenon of global terrorism as well as the rapid expansion of cybercrime has seen increased activity within the realm of Political Risk and Crisis Management insurance. The insurance segment is itself not well delaminated however, with three broad categories covering a range of risks (which themselves often contain a rich array of possible needs from clients).
The Credit & Political category has a market size of around $2.1 billion, of which around $1 billion is related to non-payment, $675 million to contract frustration and $375 million to confiscation. The Political Violence category is mainly related to terrorism, which particularly in the West been on the increase in recent years following incidents in France, Belgium and elsewhere, and has a market size of $1.1 billion, while war on land has a market of around $150 million. The largest single segment is Other Crisis Management, which contains events like kidnapping & ransom, with an insurance market of $420 million, product recall, with an insurance market of $1.5 billion, and cyber security, a market valued at around $2.8 billion.
According to the firm’s analysis, much of the market will see relative slow growth over the coming two years. The trade credit insurance market is set to grow by 4%, while contract frustration is set to grow by around 5%, confiscation will be up just 2%. Terrorism, while a big media event, is not likely to see significant growth in the current period – up just 4% annually to 2018, while War on Land is set to grow slightly to 6%.
In the Other Crisis Management segment, cyber security is set to grow the most rapidly, at 20% per year. Increased digitalisation and an increased range of ways to penetrate businesses, combined with every increasing sophistication under cyber criminals, mean that businesses continue to face stiff adversaries. Product recall, which can be particularly burdensome on businesses, is expected to see a strong 7% growth. Marine piracy is the only item to see a decrease, at -10%, on the back of improved global efforts to end the phenomenon.
The Big Four firm highlights that insurance companies may benefit from companies seeking new products that meet their specific requirements – particularly within the cyber security space. These products may themselves not be directly insurance cover related, but may instead focus on prevention through advisory related to risks for businesses and means to mitigate those risks. The changing phenomenon of global terrorism, from large scale property damage to business interruption, means that insurers may need to develop new solutions as clients seek to avoid indirect threats arising from terrorist activity.