For at least the next three to five years, equity analysts at Goldman Sachs expect double-digit compound annual growth rate (CAGR) from current global cyber premium base of less than $5 billion of global commercial premiums.
Currently, cyber premiums account for less than 1% of the international commercial insurance market, and while analysts do not expect explicit cyber coverage to be a meaningful earnings driver in the near-term, double-digit premium growth is expected over at least the next three to five years.
Analysts expect demand for cyber protection to be driven by high profile data breaches and continued regulatory enforcement actions, while a move away from silent cyber cover by insurers is expected to drive growth in explicit coverage capacity.
As noted above, Goldman Sachs’ equity analysts do not expect explicit cyber coverage to be a material earnings driver in the near term, reflecting the fact that currently it represents a small proportion of carriers’ overall premium base.
However, analysts warn that there is potential for an unintended aggregation of risks through silent cyber coverages, warning that this could be a driver of more material industry losses.
“Worldwide cybercrime-related damages are estimated to amount to up to $600bn per year, or 1% of global GDP, according to a report by The Center for Strategic and International Studies and McAfee. Some (Cybersecurity Ventures) estimate that annual losses may balloon to $6tn by 2021, and expect over $1tn to be spent on cybersecurity in the 2017-2021 period,” say analysts.
The Goldman Sachs analysts continue to explain that while 2017-2018 were the two most active years for data breaches, statutory loss ratios remained benign over this period as a result of narrower and more explicit policy language and also clearer delineation by insurance companies through affirmative cyber policies of what types of losses are covered.
“We would expect that the material increase in ransomware losses, as well as increased costs of data breaches will result in broadening of rate firming due to modest tightening of capacity, higher rates in primary and low excess layers (the burn layers) and a shift, among some insurers, to higher layers,” say analysts.
Cyber-related losses have resulted in modest earnings events for insurers, and analysts note that the vast difference between economic and insured losses, known as the cyber protection gap, portrays the very limited coverage that is offered by cyber policies.
