Economic fallout caused by the coronavirus (COVID-19) pandemic will likely test recent premium revenue trends and claims experience in the US cyber insurance market, according to Fitch Ratings.
Analysts noted that cyber insurance continues to be a small but profitable market, representing a modest portion of premium risk for individual p/c insurers.
However, they warned that a large unforeseen cyber event, such as a massive cloud intrusion or attack on infrastructure, could result in substantial individual incurred losses that could pressure capital levels and individual ratings.
Cyber insurance direct written premiums grew by 12% in 2019 to over $2.2 billion versus 8% growth in 2018, with $1.3 billion in cyber stand-alone direct premiums written in 2019, up nearly 14% from the prior year.
Demand for cyber coverage also continues to rise and recent premium rate hardening in US commercial lines extended to the cyber segment last year, with the Council of Insurance Agents & Brokers fourth-quarter commercial market survey reporting a 2.9% increase in rates.
But Fitch now believes that 2020 premium growth will be tempered by reductions in underwriting exposures from the recent sharp economic contraction tied to the coronavirus pandemic.
“Cyber coverage purchase practices may change meaningfully in the near term with mounting strain on corporate budgets and profits,” the rating agency said in a recent report.
Fitch also expects cyber underwriting performance to deteriorate as underwriting exposure grows, coverage broadens and the nature of cyber claims evolves.
Similarly, newer market entrants face challenges in meeting performance of longer term players due to limited historical pricing and claims information.
Additionally, while data breaches remain the primary source of cyber claims exposures, losses tied to ransomware attacks became more prominent in the past two years.
The recent shift toward more remote work environments is putting a strain on companies’ information security efforts and this could lead to more cyber incidents in the near term from network intrusions and more sophisticated phishing tactics.