A.M. Best has reported that the cyber re/insurance market currently faces a challenging pricing environment, although the sector continues to exhibit steady growth and capacity generally remains plentiful.
In most cases, A.M. Best found that re/insurers seem willing and able to offer capacity but reluctant to have cyber constitute a significant portion of their portfolio.
Instead, they are focusing on increasing their exposure by tapping into the small and medium-enterprise (SME) market, which is driving competition as smaller businesses tend to have fewer claims.
According the Council of Insurance Agents & Brokers (CIAB), 62% of re/insurers saw prices decline over the second half of 2017, while 66% reported no tightening of underwriting practices, and 97% said their capacity remained plentiful.
Similarly, in its Global Insurance Market Index, Marsh observed that U.S cyber prices declined for the fourth time in five quarters at Q1 2018, a trend it attributed to expanded offerings and new market entrants.
Premium pricing has also been affected by a lack of historical experience and tested exposure models, which continue to add to the uncertainty of underwriting cyber.
Cyber business interruption has proved particularly challenging to underwrite, even as demand for coverage has grown since 2017’s high-profile cyber-attacks, and PwC even claimed that re/insurers solvency could be threatened by a widespread attack.
Currently, setting parameters for potential maximum loss and staying ahead of new systemic threats pose the two largest challenges to measuring cyber accumulation, according to PwC.
Underpricing from new market entrants also remains a concern, although A.M. Best observed that companies can reduce their pricing and reserving risks by offering claims-made polices for third party claims and shifting away from occurrence policies to standalone coverage.
A majority of packaged policies still use occurrence claims triggers, but these policies tend to have limited coverage, and companies can further reduce their exposure to first-party claims by incorporating a statute of limitations in policies.
A.M. Best also noted that reinsurance remains a key avenue for reducing cyber exposure, with treaty reinsurance currently the preferable and more widely available option.