A new report by Fitch Ratings has shown that U.S. property and casualty (P&C) insurers that provide cyber insurance coverage are taking significant pricing and underwriting actions in 2021.
This is in response to a spike in cyber claims with immediate improvement unlikely this year.
The report showed that cyber insurance direct written premiums for the P&C industry rose to 22% last year to over $2.7 billion, reflecting expanding demand for coverage.
According to the rating agency, the industry statutory direct loss plus defence & cost containment (DCC) ratio for standalone cyber insurance had a sharp increase in 2020 to 73% compared with an average of 42% for the previous five years.
The average paid loss for a closed standalone cyber claim increased to $358,000 in 2020 from $145,000 in 2019.
Fitch explained that cyber insurance is a growing but relatively small business line in U.S. P&C insurance, representing less than 1% of industry direct written premiums.
Segment market share remains relatively concentrated, with the top five writers holding 50% market share and the top 20 writers maintaining 87% market share in 2020.
The top three U.S. cyber writers are unchanged from the prior year include Chubb Limited, AXA XL and American International Group.
Losses tied to ransomware attacks have become more prominent in the last two years with a number of incidents already this year. Pricing for cyber coverage has increased at an accelerating rate over the last two years.
Fitch Managing Director James Auden commented: “The cyber market faced a reckoning in 2020, as loss experience deteriorated, particularly from an influx of ransomware incidents.
“While cyber premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term.”
“The magnitude of rate increases will support future improvement in cyber underwriting results; however, ongoing claims developments will likely dampen immediate progress in 2021,” Auden added.