Russia’s invasion of Ukraine has led to a situation in which cyber insurers are increasing rates and narrowing coverage due to the possibility of cyberattacks.
A new note from Moody’s says that while attacks related to the conflict have not yet risen to a level previously feared, further and large-scale attacks remain a possibility.
This, says the firm, comes at a time when cyber insurance has become more expensive and insurers are seeking to narrow coverage because ransomware attacks have driven losses higher and weakened profitability.
Moody’s wrote: “Stringent sanctions the US and allied governments placed on Russia following its invasion of Ukraine 24 February have increased the likelihood that both Russian government and nongovernment actors will attempt cyberattacks on entities across sectors and regions as an illicit means of raising funds. The most likely targets are banks, cryptocurrency platforms and corporate intellectual property assets. The military conflict has also increased risks of cyberattacks against critical infrastructure in Ukraine and beyond.”
Quoting the Verizon Business Data Breach Investigations Report, Moody’s said that ransomware attacks increased 13% between November 2020 and October 2021, a jump greater than the last five years combined.
It is against this backdrop that insurers have seen a steep take-off in the market.
Moody’s wrote: “Based on regulatory filings, US cyber insurance reached almost $5bn in 2021, with rising insurance rates and growth in small and midsized companies driving premiums up substantially in 2021. According to Munich Re’s 2022 Cyber Risk and Insurance Survey, global cyber premiums totalled $9.2bn at the beginning of 2022 and are expected to increase to $22bn by 2025.”
It added: “Over the past several years, there has been a clear rise in ransomware attacks despite a dip in ransomware attacks in 2022 from a year earlier. Loss ratios (incurred claims as a share of premiums) for standalone cyber insurance in the US rose to more than 65% in 2020 and declined slightly to approximately 62% in 2021. When including defense costs, the ratio increases to about 65% in 2021. Assuming an average expense ratio of 30%, the estimated combined ratio for standalone cyber insurance was about 95%, meaning the product was slightly profitable.”
An increase in claims has caused insurers to raise premiums, said Moody’s, alongside reducing coverage and tightening terms and conditions. The firm said this should help improve insurers’ loss ratios this year.