Insuring the Cyber Security Risk | CRC Insurance | FF Virtual Arena #338

Insuring the cyber security risk. In another engaging FF Virtual Arena interview, we speak to Garrett Koehn, President and Chief Innovation Officer at CRC Insurance Services, to explore his role in the evolving cyber security insurance space, his insights into the challenges of insurance distribution, and his active involvement with Fintech and Insurtech startups.

We hear about his experiences in San Francisco’s dynamic startup scene, and there’s some essential insights into transformative trends around parametric cyber insurance.

Leadership and innovation

Despite having stepped back a little from his role as President of CRC Insurance, Garrett Koehn is still very much involved and excited by the opportunities he sees in the insurance industry. In this conversation he delves into the evolving challenges in insurance distribution, the industry’s response to emerging risks like climate change, and the integration of modern technologies to tackle age-old issues.

Koehn’s role in CRC’s Executive Pro Group places him at the forefront of CRC’s cyber security work. They cover a whole range of insurance areas including property, casualty, benefits, and life insurance but there is definitely something interesting about the emerging threats posed by cyber crime.

The interview also covers Koehn’s hands-on experience in San Francisco’s vibrant startup scene extending back two decades to his early investments. Over the past eight years, he has turned his focus to the rapidly expanding Insurtech market, often partnering with companies whose visions align with CRC’s.

The Evolving Landscape of Risk and Cyber Insurance

Koehn also discusses the transformations in the types of risks insurers manage today. The industry has moved far beyond traditional areas like property and life insurance to address new threats posed by cyber risks, climate change, and social inflation.

When Koehn entered the cyber insurance market, it was in its infancy, mainly covering third-party liabilities, like hacking and data breaches. Since then, cyber policies have expanded to include first-party coverage for direct costs, monitoring services, and even parametric ransomware payments, which release immediate funds in the event of an attack.

This shift is in part a response to technological advancements and changing risk profiles. For example, parametric insurance—which pays out based on the occurrence of a specific event, such as a flood or hurricane—has become a vital tool for quickly supporting disaster-affected clients. This model circumvents lengthy claim processes, allowing for immediate relief based on predefined metrics, such as rainfall levels or wind speeds, which is especially valuable in today’s climate-driven disaster landscape. And it could be used more and more to mitigate the risk of cyber attacks.

Tackling Persistent Distribution Challenges

A big challenge the insurance industry is facing involves the matter of distribution. Unlike the U.S., where wholesale distribution channels have thrived and diversified, Europe has yet to adopt similar wholesale models. As of 2023 there were 417,730 Insurance Brokers & Agencies businesses in the US, presenting an immense network for insurers to navigate. Traditional distribution models required insurers to establish regional offices and underwriters, but today, Koehn highlights that large insurance firms are streamlining efforts. By focusing on major wholesale brokers, insurers can access the retail market more effectively. However, distribution remains complex, and the initial way that fintech approaches to direct-to-consumer models often proved more challenging than anticipated, underlining the difficulty of optimizing this essential part of the insurance ecosystem.

The Role of Partnerships

All areas of financial services are increasingly collaborative and CRC definitely sees itself as part of this. Koehn explains their internal conversations about whether to build solutions in-house or to partner with external specialists, a decision ultimately informed by cost, time, and scalability. For instance, CRC initially invested resources into building its own APIs to improve data flow between systems but recognizing the technical and financial resources required, they partnered with Herald API.

The insurance industry’s shift towards more flexible ecosystems is apparent as financial services and Insurtech continue to collaborate more closely. Koehn points out that by partnering with startups, CRC can tap into innovations that might otherwise be cost-prohibitive or time-intensive to develop internally. These partnerships enable CRC to stay at the forefront of the industry’s evolution while maintaining operational efficiency.

Adapting to Constant Change

As the discussion wraps up, Koehn reflects on the greatest technological change he’s witnessed. The digital revolution has ushered in unprecedented efficiencies, reshaped risk profiles, and created new product categories like cyber and parametric insurance. Yet, traditional challenges such as distribution remain largely unresolved, with technology offering solutions that are still maturing.

It’s a great look at the changing insurance space, adding to some of the other great conversations we’ve had over recent months, all of which you can find right here.