Blog: The upcoming soft market will make the mutual model unattractive

News that a group of European companies including Airbus and Michelin have joined forces to create a mutual cyber insurer has raised some eyebrows among brokers and insurers, but the popularity of such structures is unlikely to survive the upcoming soft market in cyber. 

Following years of back-to-back rate increases, brokers are now privately calling the peak of the market. One major cyber broker told CyberInsurer.com that he is budgeting for 10% rate decreases on average for policies renewing in 2023.

Under such conditions, European Union companies - which have tended to struggle more than their US to find appropriate cyber coverage - could see more capacity be made available to them, making structures like cyber mutuals less attractive.

The new Belgium-incorporated mutual, which includes BASF, Solvay and Veolia as well as Airbus and Michelin, will make up to €25m of coverage available to members, according to reports.The first policies are expected to incept from January 1 2023. The minimum attachment point will be €10m.

Such a structure is a sign of the level of desperation felt by EU risk managers. It carries significant risks, and will rapidly come under intense competition from insurers in a soft market.

But there remains a danger for the cyber insurance market here. Buyers seem likely, at this point, to forgive the market for the massive rate increases they have recently suffered.

But if, following a soft market, rates suddenly start rising sharply again, and the market fails to provide the stable pricing that risk managers need, the reputational damage could be severe, and ideas like cyber mutuals are likely to come back to the fore.