Perception Shapes Reality

How Views on Financial Market Correlation Affect Capital Availability for Cyber Insurance

Abstract

The future of the cyber insurance and reinsurance market is uncertain, as is the case for any new and emerging market. A lack of historical data and experience constrain the analysis needed to support growth. Further, the prospect of fresh capital from the insurance linked securities (ILS) sector is constrained by a number of practical factors. Among the most important, though, is one that is nearly impossible to prove: the extent to which cyber risks are correlated with financial markets. It is an article of faith, and one that lacks clear consensus in the ILS market. If cyber is not correlated with financial markets, gaining adoption of that view could mean a significant influx of risk capital to support a new and expanding market. However, if the contrary becomes the dominant narrative, future cyber market growth could become slow and difficult to attain. Absent the ability to prove the negative, this article features makes an original contribution to the literature by presenting the findings of interviews with leading ILS managers on their views regarding the extent to which cyber risk is correlated with financial markets. The result is a new perspective on how to fuel cyber re/insurance growth.