Tadikonda believes that the past few years have reminded everybody what a volatile and complex line cyber can be, after a long period of stability previously.
The executive noted that insurers and the capital markets have struggled with the massive uncertainty brought on by a rapid increase in ransomware losses.
“When 15 years of historic performance just don’t carry forward anymore, whether it’s policyholders, brokers, carriers or the reinsurers on the backend, that lack of understanding or opacity just really freezes up everything,” he said.
Tadikonda continued: “You’ve seen a lot of folks who leaned into the market before have their fear/greed meter pinned on the fear side and thinking, ‘I thought this is a manageable risk, but now I’m worried that Google, Amazon Web Services or Microsoft go down and I have full limits loss across my portfolio’.”
Corvus believes that view is probably too extreme in the opposite direction, and that there are ways policyholders can protect themselves. Tadikonda noted there are new forms of data that carriers can use to show they are putting together the right portfolio and focusing on the safest policyholders.
“I think of it as a watershed moment for the insurance industry - you either figure out how to price these products and how to help our policyholders become safer and protect themselves, or we’re at the risk of irrelevance. I think the transition that’s coming is bumpy and people are worried. Nobody wants to blow up their book because of cyber risk,” he said.
Corvus last month announced the acquisition of Lloyd’s coverholder Tarian Underwriting from Beat Capital Partners. The deal made Corvus the first cyber insurtech to acquire a London underwriting platform, which will provide it with global underwriting capabilities and access to Lloyd’s cyber insurance capacity.
Tadikonda noted Tarian has been in the cyber market and “had read some of the tea leaves earlier and pulled back some of their capacity ahead of the market”.
The executive said that the long history of creativity at Lloyd’s makes that market especially well suited to cyber risk.
“What’s frozen up the insurance market in cyber is this worry about systemic risk and aggregations,” he said.
“The Lloyd’s folks have always had that in their DNA of thinking about measuring and modeling. The risks that other people think of as incalculable or crazy are exactly where Lloyd’s has come in and played a critical part.”
Heartbreak ahead for some insurtechs
Looking ahead for what 2022 will bring for the insurtech space more generally, Tadikonda expects a painful adjustment period for some.
“I think everybody in the insurtech world is scratching their head a little bit about what’s happened to the first batch of mostly personal line insurtechs that had very high flying market caps and have come back down to earth a bit,” he said.
The executive noted similarities between the insurtech situation now and the dot-com boom, where companies such as Amazon and Salesforce were able to emerge because of “great unit economics and fundamental business models that worked”.
He expects a phase where the “wheat is separated from the chaff” in insurtech.
“We’re probably past that overhype part of the cycle,” Tadikonda said. “Now it’s which companies are great risk takers and have good unit cost economics, who are actually attracting and holding good customers, building good insurance ventures and building for long-term value.”
He added: “We at Corvus think we’re on the right side of that. So it’ll be an exciting time, but there will definitely be some heartache and some ups and downs as we make it through this phase of the market.”
When asked whether the turmoil for listed insuretchs means Corvus would not be looking to go public any time soon, Tadikonda said: “That’s a great option to always keep in mind. It’s always on the cards, but just something we’re probably not prioritizing for the next 12 months.”
Corvus in March last year secured $100mn in Series C funding that increased its valuation to $750mn. In May it announced a $15mn extension to that round, which brought its overall funding to $162mn.