Direct premiums written in the US cyber liability market continued to grow in 2021, seeing a 75% increase, far outpacing that of the overall property/casualty insurance industry.
However, according to an AM Best report, there has been a 16% increase in claims and just a modest reduction in the loss ratio, despite significant rate hikes. These figures highlight the challenges the segment still faces.
AM Best’s report, US Cyber: The Hardest of the Property/Casualty Markets, notes that some of the cyber growth is being driven by the overall hardening of commercial insurance prices owing to inflation fears and a general weakening of the investment market.
The pandemic also brought to the fore the change in work environments and a greater need for cyber protection. The growth in cryptocurrency, the immediacy of payments, and the lack of buyers for stolen data also make ransomware much more attractive for a criminal enterprise, increasing the need for coverage.
Standalone cyber direct premium grew by 95% in 2021, increasing to the point that it exceeded all 2020 cyber premium combined.
Through 2018, the majority of cyber-related claims were on packaged policies. However, according to the report, claims on standalone policies are now the majority – and growing. Standalone policies are more often subject to claims, given that more-sophisticated clients with more data and financial resources typically purchase these policies.
Despite the ongoing growth in cyber claims in 2021, cyber insurers’ underwriting performance still improved, as evidenced by an estimated combined ratio of 91.8 in 2021, although the estimated combined ratio on standalone policies was worse at 98.8.
The positive underwriting results were due largely to strong rate increases, which exceeded on average 25% in each quarter of 2021, according to the Council of Insurance Agents and Brokers.
With cyber attacks becoming more complex, AM Best expects the cyber market to remain hard for some time. The hardening market and a lack of capacity also has made captives an attractive risk management option for corporations.
Christopher Graham, senior industry analyst at AM Best, said: “Cyber crime generated significant headlines throughout 2021. These attacks underscore the urgency of addressing cyber threats, which require brokers, underwriters, managing general agents and customers to work together, along with some legislative and regulatory involvement. The rising frequency and severity of ransomware attacks suggest that insurers need to be more proactive.”