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Cyber insurance market growth slows in 2018, says Fitch

20th May 2019 - Author: Luke Gallin

Growth in the cyber insurance market slowed dramatically in 2018 when compared with the previous year. However, analysts at Fitch Ratings expect a desire for improved risk management and pricing will benefit the sector over the long-term.

cyberIn total, the U.S. property and casualty (P&C) industry’s total direct written cyber premiums grew by 8% in 2018 to $2 billion, and while growth did occur in the year, it slowed significantly compared with the 37% growth witnessed in 2017.

Director of Insurance at Fitch Ratings, Gerry Glombicki, said: “After several years of brisk growth, U.S. cyber insurance segment revenue moderated in 2018. However we continue to believe that high profile cyber events, desire for more sophisticated risk management and improved pricing will buoy the segment in the long term.”

According to insurer statutory financial data in the ‘Cybersecurity and Identity Theft Insurance Coverage Supplement’, standalone cyber premiums increased by 12% last year. Fitch notes that high profile events and uncertainty surrounding cyber terms in commercial policies continues to highlight a need for adequate protection.

An example of a recent, high profile cyber attack can be seen with the LockerGoga ransomware attack which hit Norwegian aluminium manufacturer Norsk Hydro.

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Increasingly, although it does vary by company, insurers are looking to tackle the silent cyber threat, and this includes measures such as adding affirmative coverage in policies, including sublimits and cyber endorsements.

So far, the cyber market has produced strong profits, with statutory industry direct loss ratios for standalone policies being consistent and favourable in 2018, at 34%.

The ratings agency warns that the inherent complexity of cyber risk combined with a lack of historical data makes it very challenging for underwriters, stating that ultimately, insurers that do underwrite the risk do so with great uncertainty in measuring the likelihood and ultimate cost of potential cyber events.

“Fitch has concerns that favorable results could promote price competition, looser underwriting terms and conditions, and attract naive capacity, all which could cause significant disruptions to this immature and untested market,” said Glombicki.

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