A new report from AM Best says rate increases and cutbacks in capacity are causing the cyber liability market to cool after becoming one of the fastest-growing segments in the United States property and casualty (P&C) insurance industry.
The report, Hot Cyber Market Is Cooling; Solutions to Address Systemic Risks Needed says this insurance was significantly underpriced initially but the growing frequency and severity of claims in 2020 and 2021 had led to the first hard market cycle for the segment in the U.S.
The report states that direct cyber premiums written in that country in 2022 range between USD$8-billion and USD$11-billion, up from just USD$2.7-billion two years ago. These are moderating somewhat but insurers, however, have become more conservative with limits and shares. These companies are placing greater focus on managing aggregate cyber exposures because of the systemic risk involved; they are also becoming more cautious with the total limit exposed on any one policy.
“Cyber risks have no seasonal or geographic limitation,” says Christopher Graham, senior analyst with AM Best. “A cyber event could start in Europe, spread to North America and then across the Pacific ocean into Asia. The spread of cyber events across borders prevents insurers from diversifying cyber risks.”
Further, they add that the risks themselves may be correlated. “Many insured entities use the same cloud services, so any cloud outage could lead to multiple claims. Although this has not yet occurred, it exposes the vulnerability of cyber insurance.”
The report looks at new capacity solutions but notes that the cyber insurance market has yet to be tested by a catastrophic loss. A USD$1-billion loss event would strain the system. “A larger loss would be difficult for insurers to cover,” they write. “Consequently, insurers and reinsurers are starting to incorporate catastrophe loads into pricing models.”
