Speaking at the 2025 Convergence event in Bermuda last week, Tom Johansmeyer, Global Head of Index Classes, at broker Price Forbes Re, made a notable claim, suggesting that the industry’s perception of cyber war is keeping capital away and hindering market growth.
During a panel session, Johansmeyer argued that the fear of cyber war is greatly exaggerated and not supported by empirical evidence.
“Cyber war is one of the biggest problems we fear in the reinsurance market, when it comes to cyber coverage, as mentioned on the panel yesterday, it’s often excluded. The question is why? This is the insurance industry’s view on cyber war – this is a preview of some of the doctoral research I’ll be submitting at the end of the year, and when you look at it, it’s pretty crazy. War is a huge element of cyber risk,” Johansmeyer explained.
He continued: “As regards to cyber warfare, it is important to state that risk transfer is not possible. Cyber war is described as an eventuality, and it’s said to be intended to cause the maximum level of disruption.
“Put all this together and the fear of cyber war has been profound and impactful. We’re scared, but why are we scared? When you look at the past, there’s nothing to be afraid of. What we have here is a hyperbolised view of cyber war by the industry, which is inconsistent with lived experience, empirical evidence and historical analysis.”
During the session, Johansmeyer referenced a number of key events, highlighting the 2022 invasion of Ukraine as evidence that cyber-attacks during the conflict were largely ineffective.
Later, he explained how the industry’s perception of cyber war ultimately keeps capital away and restrains market growth.
“My thesis is going to show that the problem with our view and how we communicate that view on cyber war has less to do with what’s excluded and more to do with the fact that we’re scaring the hell out of capital.
“If you’re always told there’s something on the periphery that could tank the industry, and you’re a conservative investor with a long-term time horizon, and you want to know what you’re getting into, you’re going to say: ‘I’ll hang back on cyber. I’ll wait for the big one. I’ll wait until we know what this war stuff looks like.’”
Johansmeyer stresses that this perception keeps the industry from developing.
Johansmeyer also noted that cyber could become a much bigger class of business, but only if the industry incentivizes new capacity to enter.
“Cyber could be a bigger, much bigger class of business. The first thing we have to do is incentivize capacity to enter and that means developing a real view of the risk. We need to get the right people playing in the right positions. That means reinsurers need to start taking on volatility. Insurers increasingly want that, they want more Xol coverage, more event coverage, more aggregate protection, and less quota share etc.,” he explained.
To close, Johansmeyer suggested there is potential for insurance-linked securities (ILS) in cyber risk, but the market needs to mature and refine its approach to pricing and risk assessment.
“Looking at historical experience, I think the ILS market did a great job two years ago stepping into that space where there was a massive opportunity to go and start using these structures as the cat bonds back then showed.
“Now that those are coming up for renewal, some of the questions I have are is that the right role for the ILS market? Is the ILS market’s role better served a couple years from now, when reinsurers have come in and taken on more of the volatility, creating enough real volume in the reinsurance market for that retro use case to come in for the ILS space?”
Johansmeyer added that if he were in an ILS fund today, he would be interested in current cyber cat bonds, but noted that prices and attachment points need to be come down.
“If I were in an ILS fund, looking at the bonds that came to market, I’d be on them. But those prices need to come down, those attachment points need to come down. We’re worried about these $8-10 billion industry losses. Let’s dial back, take a look at history and figure out where we need to be.
“I think as an industry we would be well served to spend more time outside our echo chamber. I’d say one of the greatest findings from my research is that, compared to the rest of the world, security stakeholders in cyber have a much different view of the risk than we do, and they’re talking to each other.”
Also read:
– Bermuda uniquely positioned for next-generation ILS solutions: Convergence 2025
– ILS increasingly institutional. But investor education still critically important: Convergence 2025
– Pensions expected to drive next wave of additional capital into ILS space: Convergence 2025
– Education and engagement key as cyber heads toward peak peril status: Convergence 2025
– Staying ahead, Bermuda’s ILS market focuses on digital transformation, AI & talent: Convergence 2025
