Analysts at Fitch Ratings note that a higher propensity of cyber incidents will likely hinder a near-term reversal of claims cost trends, suggesting increasing profit pressure for cyber insurers.
During 2020, property / casualty (P/C) insurers that write cyber cover reported substantially higher claims losses than in prior years, reports Fitch.
Over the medium-term, the ratings agency states that significant premium rate increases, alongside tighter coverage terms, are expected to encourage a recovery in underwriting performance.
“However, a higher propensity of cyber incidents, particularly ransomware attacks, are likely to hinder a near-term reversal of claims cost trends,” says Fitch.
According to Fitch’s analysis, which is based on data compiled from cyber insurers supplemental filings in statutory financial statements, industry direct written premium (DWP) for cyber cover in both standalone and package policies spiked by 22% in 2020 to roughly $2.7 billion.
Reflecting heightened demand for specific cyber protection, and also carriers’ interest in reducing ambiguity in coverage relative to cyber risks included in package policies, written premiums for standalone coverage increased by 29% in the year.
“Demand is driven by the need for risk management expertise and insurance protection by firms of all sizes due to incidence of network intrusions, data theft and ransomware incidents that have increased substantially in the last two years,” says Fitch.
Cyber is widely regarded as one of the key markets for insurance and reinsurance growth as it’s expected that huge amounts of capital will be needed to support this fast-growing segment.
When you consider the potential scale of losses that could come with a significant cyber incident, coupled with the broader impacts cyber loss events could have, it’s clear there’s a real need for specific and tailored products, backed by robust and adequate risk capital.