Cyber cover, estimated to range from $7.5 billion – $20 billion by 2020, is predicted by industry observers to become one of the leading areas of U.S. Property & Casualty market growth, and the sector is shifting to accommodate this growth, moving from underwriting cyber as part of a combined policy to a standalone policy, A.M. Best stated in its latest report on the U.S. P&C market.
The rating agency said that with the growing frequency and intensity of cyber attacks in the past two years, this risk presents the greatest opportunities for U.S. P&C growth.
However, as much uncertainty still surrounds this risk, carriers are advised to be cautious in underwriting practices, using appropriate risk management and mitigation measures.
Direct premiums for cyber cover have seen outstanding growth of 34.7% from 2015 to 2016 reported by U.S. companies – and while this trend could continue into coming years, A.M. Best cautioned that some doubts remain as to whether this growth will continue to skyrocket; “after every reported breach, the demand for coverage increases but the overarching question is whether this demand will be sustained.”
A key trend identified from A.M. Best’s analysis of 2015 and 2016 data is that top cyber policy writers have shifted from packaged policies to standalone policies – a sign of progress towards developing more sophisticated understanding of cyber risk: “Total direct premiums written (DPW) in 2016 was $1.3 billion, of which 67.9% were on a standalone basis, with the balance reported as packaged policies.”
“Focusing on the top twenty writers, standalone cyber policy paid losses, relative to direct premiums earned (DPE), increased from 19.5% in 2015 to 24.3% in 2016.”
“This increase in paid losses for packaged coverages was driven by the defence and litigation costs that are inherent in such policies.”
A.M. Best said that prior to this move to standalone cyber policies, most claims had been covered under traditional insurance products such as Commercial General Liability Policies (CGLP), Business Interruption (BI), or Directors & Officers (D&O), however, as the industry makes the shift to writing cyber as a standalone risk, better pricing and reserving methods and more refined models and risk aggregation policies are being developed.
“A.M. Best expects a continued increase in the standalone type of coverage as compared with packaged, mainly due to anticipated cost and expense reductions in litigating disputed claims, as well as more specific and defined policy language focused on the prevalent type of attacks.”
