Alternative risk transfer solutions such as catastrophe bonds are key to bridging the growing cyber protection gap, the Geneva Association says.

Cyber cover has grown rapidly, with global premium rising to $US15 billion ($23 billion) last year from less than $US1.5 billion ($2.3 billion) in 2013, but digital risks remain huge and most are uninsured, according to a report from the think tank.

“Expanding risk-absorbing capacity for cyber is vital given the size of the protection gap and the ever more hostile threat landscape,” the paper says. “Ongoing and deepening digitalisation has driven up cyber risk exposures significantly in recent years.”

It says possible cyber losses are too large and uncertain for reinsurers and insurers to cover alone, making it crucial that solutions such as catastrophe bonds are utilised to attract more risk-bearing capital.

Catastrophe bonds have mostly been issued for natural perils, but there are signs of a nascent cyber bond market.

Since the start of last year, at least five (re)insurers have issued cyber bonds, the report says. However, the amount of risk transferred, about $US800 million ($1.2 billion), remains modest and represents less than 1.7% of the total catastrophe bond market.

“A key issue, therefore, is whether market conditions are ripe for a significant and sustained upscaling in cyber risk transfer to capital markets, a crucial future step in distributing catastrophic cyber risks to those most willing and able to absorb them.”

The recent flurry of cyber bond issues is a welcome development, the report says.

“While the sizes of the individual deals were relatively small, they show the art of the possible in terms of risk transfer.

“At the same time, important obstacles remain that limit how far and how fast cyber … issuance will likely proceed, at least on terms that are mutually attractive to both sponsors and investors.”