Despite growth expected for cyber insurance in 2024, actuarial consultancy OAC – part of the Broadstone Group – predicts a mixed market outlook in the year as there are some areas of concern that could lead to a major loss event and have the potential for accumulation.
According to the firm’s Insurance Risk Monitor, 2023 demonstrated record growth in global cyber insurance business volumes.
Global gross premium volume for cyber insurance grew by over 20% annually between 2019 and 20221, and demand is forecasted to increase significantly for at least the next decade, according to Munich Re analysts.
Additionally, premium growth is also predicted to grow, going as high as 25% p.a, as forecasted by S&P.
“Demand for cyber insurance is rising across almost all economic sectors and is highest from industries that rely on or handle personalised data, confidential information, electronic transactions and online services. Providers of critical infrastructure are also seeking expertise from insurers to mitigate the risk of or disruption following a cyber-attack,” the OAC said.
OAC’s non-life consulting team stated that the rating environment remains competitive however the competition is at healthy levels and current rates are broadly adequate to deliver underwriting profits.
The report also noted that exclusions for state backed cyber-attacks on standalone cyber policies introduced in August 20224 has resulted in some business leaving Lloyd’s for other markets however they have not seen evidence that this change has significantly dampened overall premium volume increase.
Tate adequacy has most likely improved because of this change, as a significant driver of downside risk was mitigated without a material loss of rate, according to experts.
“Based on our analysis, we believe downside risk for cyber insurers has deteriorated over the last two years, although this deterioration is mainly in the tail and therefore is not necessarily visible in the claims experience,” the OAC stated.
Analysts warned that there are a number of drivers that have increased the likelihood of a major loss event and as well as the potential for accumulation given an event occurs.
Some of the key areas concerning insurers include the use of AI by cyber-criminals, as this technology has allowed them to significantly improve their capabilities for deception, impersonation, creation of malicious software and evading detection.
There is also a concern with the increased risk of state-sponsored attacks, potentially the result of heightened geo-political tensions. Many analysts report that cyber-crime is increasingly seen by certain states as an alternative source of income in the face of economic sanctions, according to the OAC.
Bharat Raj, Head of London Markets at OAC, said: “Cyber insurance remains an attractive market for incumbents and new capital and there is good opportunity for growth and underwriting profit.
“Engagement with your policyholders, coverholders and cedants is key to ensuring strong underwriting performance. Policyholders and cedants increasingly look to their insurance partners for expertise and advice for mitigating cyber risk in the first place. Working collaboratively generally pays dividends as it can help drive improvements in the claims experience and premium rates as policyholders appreciate the value-added services on offer.
Another key concern is increased exposure due to the growing prevalence of connected devices. This has led to a steady increase in the complexity for managing cyber security as well as an increase in the average number of entry points that cyber-criminals can target.
Raj continued: “Actuaries and risk managers have a significant role to play given the current, rapidly shifting environment. The historical experience is likely to need adjustment to reflect changes in the general risk environment, coverage terms and the mix of sectors covered as this class evolves.
“Actuaries and risk managers are uniquely placed to help insurers understand the downside risk and drivers of loss accumulation across the cyber portfolio. Various vendor models have emerged for cyber insurance but these are still at a nascent stage and have not yet reached the same maturity as natural catastrophe models.
“Scenario analyses and actuarial deep dives are probably the best tools currently available for really getting to understand the tail risk.”
