Best’s Market Segment Report: Amid More Complex Attacks and High Demand, Hardened U.S. Cyber Insurance Market Here to Stay

OLDWICK, N.J.--(BUSINESS WIRE)--Direct premiums written in the U.S. cyber liability market sustained its significant growth trend in 2021 with a 75% increase, far outpacing that of the overall property/casualty insurance industry. However, according to an AM Best report, a 16% increase in claims and just a modest reduction in the loss ratio despite significant rate hikes highlights the challenges the segment still faces.

The new Best’s Market Segment Report, titled, “U.S. Cyber: The Hardest of the Property/Casualty Markets,” notes that some of the cyber growth is being driven by the overall hardening of commercial insurance prices owing to inflation fears and a general weakening of the investment market. The pandemic also brought to the fore the change in work environments and a greater need for cyber protection. The growth in crypto-currencies, which are difficult to trace, the immediacy of payments, and the lack of buyers for stolen data also make ransomware much more attractive for a criminal enterprise, increasing the need for coverage.

“Cyber crime generated significant headlines throughout 2021,” said Christopher Graham, senior industry analyst, AM Best. “These attacks underscore the urgency of addressing cyber threats, which require brokers, underwriters, managing general agents and customers to work together, along with some legislative and regulatory involvement. The rising frequency and severity of ransomware attacks suggest that insurers need to be more proactive.”

Standalone cyber direct premium grew by 95% in 2021, increasing to the point that it exceeded all 2020 cyber premium combined (i.e., standalone and packaged). Through 2018, the majority of cyber-related claims were on packaged policies. However, according to the report, claims on standalone policies are now the majority—and growing. Standalone policies are more often subject to claims, given that more-sophisticated clients with more data and financial resources typically purchase these policies.

Despite the ongoing growth in cyber claims in 2021, cyber insurers’ underwriting performance still improved, as evidenced by an estimated combined ratio of 91.8 in 2021, although the estimated combined ratio on standalone policies was worse at 98.8. The positive underwriting results were due largely to strong rate increases, which exceeded on average 25% in each quarter of 2021, according to the Council of Insurance Agents and Brokers.

With cyber attacks becoming more complex, AM Best expects the cyber market to remain hard for some time. The hardening market and a lack of capacity also has made captives an attractive risk management option for corporations. Cyber risk modeling also is improving as more data becomes available; however, these are not anywhere close in maturity to natural catastrophe models.

“Global regulators, along with the NAIC, should consider requiring that insurers break out cyber metrics in their financial statements, which will do much to improve accuracy and consistency of these metrics,” said Fred Eslami, associate director, AM Best. “It will also enable stakeholders to analyze trends and profitability and to develop best cyber practices for a healthier marketplace.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=320999.

AM Best will host an analytical briefing featuring its analysts and industry experts on challenges in the cyber insurance market at 2 p.m. (EDT) on Friday, June 24, 2022. To register for the complimentary event, or for more information, please go to http://www.ambest.com/conferences/AMBCyber22/index.html.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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