Insuring against cyber-risk represents a major opportunity for the insurance-linked securities sector, but first there are hurdles to clear.

And one of the things that needs to be overcome is the market’s “addiction” to property/catastrophe insurance.

“We have to break the addiction to cat losses,” said Tom Johansmeyer, assistant vice-president of PCS Strategy and Development. He spoke during a panel discussion on cyber and the ILS market, at the ILS Bermuda Convergence event last week.

“We all have to sit down and admit that we have an addiction to property cat. It’s short tail, it’s easy, you can understand it, it’s well modelled,” he said.

“When you look at all the other lines that have come to the ILS market, nothing is big enough to help us break that addiction. Nothing comes close to US hurricane — but cyber seriously could.”

Mr Johansmeyer said things are changing and cyber-risk is now widely recognised as a new and potentially significant line of business. Even so, some have opted for the slow lane.

“Everyone is resigned to the fact that cyber is coming into the ILS space. Now they are jockeying to see who can get to the back of the line. [It’s a case of] let’s wait for a few other people to go, wait for the mistakes, deploy the capital and then I’ll step in when I have no choice, when cyber is pretty much Florida wind.”

But things are changing. Referring to estimated insured losses in the tens of millions of dollars for recent cyber events at Merck, Equifax and Southwest Airlines, Mr Johansmeyer said: “Cyber is starting to show the signs that it can be a breakout class.”

He admitted there is still reluctance and concern about cyber-risk and how to model it and price risk.

“Everything you hear is that it is difficult, hard to understand and get your head around the exposures. And that there is no insured loss history,” he said.

“Data is not the problem. The challenge is taking that data and using it as a bridge to insurance.

“We need capacity to come in to start to write the underlying business effectively.”

According to Mr Johansmeyer ILWs (industry loss warranty transactions) can make a difference. “They are easy to understand,” he said.

Rick Welsh, CEO of Sciemus Ltd, a modelling and risk analysis company, took a similar position regarding the need for the ILS sector to focus less on property casualty.

Also speaking as part of the panel at the two-day conference, which was held at the Hamilton Princess, he told delegates: “We are trying to create a market here and wean you off property casualty,” he said.

Mr Welsh spoke of wide opportunities for ILS in relation to cyber-risk, including the need for insured protection for critical national infrastructure.

He also pointed to a communication mismatch between clients and insurers, saying clients don’t look to book their risk into the insurance “silos” that much of the industry continues to feature.

Mark Greisiger, president of NetDiligence, and Phil Rosace, senior solutions manager at Cyence, were also featured on the panel. They gave examples of cyberbreaches and spoke of trends, such as better orchestrated and more sophisticated spearphising attacks against businesses, and of the growing financial cost of cyber attacks for big and small companies.