AM Best’s recent market segment report highlights how the cyber insurance sector has become a focal point of growth and risk within the property/casualty (P/C) industry.
The report notes that although pricing for cyber insurance stabilised in 2023, the demand for it remains stable. According to AM Best, “cyber insurance is one of the fastest growing lines of business in the P/C industry the past eight years.”
Moreover, cyber insurance is still seen as having the greatest potential for growth in the P/C industry, with direct premiums written (DPM) estimated to reach $15 billion by 2025.
AM Best highlights that “in 2023, the number of ransomware attacks rose sharply, with some industry experts suggesting increases ranging from 50% to 75% over 2022.” However, cyber prices remained stable, suggesting a softer market for cyber insurers.
The report highlights that surplus lines insurers, focusing on smaller and mid-sized accounts, have played a significant role in the growth of the US cyber insurance market, particularly with standalone policies accounting for around 70% of all the cyber business written in 2022.
However, AM Best analysts caution that this growth is not without risks. The frequency and severity of cyber losses have increased, largely due to the surge in ransomware attacks. These attacks often involve demanding payment to restore operations and prevent the release of stolen data.
In response to these challenges, the SEC implemented rules in July 2023 requiring companies to disclose significant cybersecurity incidents within four days. However, threat actors have found ways to exploit this requirement, complicating the disclosure process for targeted companies.
AM Best states that one of the ways threat actors did this was “by filing whistleblower claims on their own attacks with claims that the incident was not disclosed or that the disclosure was inaccurate.”
The report also underscores the importance of clearly defining terms like “war” in cyber insurance policies, as cyber attacks can transcend geographical and political boundaries.
Additionally, the introduction of cyber catastrophe bonds in 2023 signals growing investor support for covering cyber risks. This trend is expected to continue, with more issuance of insurance-linked securities (ILS) aimed at bolstering the cyber insurance market’s capacity to effectively manage and mitigate cyber risks.
