As SMEs become more competitive with larger firms, they will continue to buy package policies with the addition of cyber endorsements packaged with E&O policies. Other insurers will likely follow suit to the demanding pressures of the competitive market and to meet demands of policyholders.
Profitability of the Cyber Insurance Market
Overall, the profitability of cyber will remain profitable. Since carriers are able to price higher loads based on the uncertainty of the risk that surrounds cyber, profitability is almost a given. However, as more data is gathered, more competition will step in and put pressure on the market and profit margin will certainly shrink.
Companies such as Chubb, AXA US, and AIG currently top the cyber writer’s market, but there is plenty of room left for healthy competition. No doubt, companies such as Hartford, Liberty Mutual, and Farmers will take notice of this market share and step in to take their piece of the cyber pie.
Challenges to the Cyber Insurance Market
With the uncertainty of policy pricing, underwriting remains a difficult area. As hackers continue to find new ways to beat technology, the use of big data, and the growing threat of foreign agents continues to make underwriting difficult.
However, A.M. Best tends to believe that most solid insurers are not overtly exposed. An A.M. Best report Cyber Insurers Are Profitable Today, but Wary of Tomorrow’s Risks, states that, “Most companies writing cyber insurance are remaining prudent about their total exposure, and cyber exposure relative to policyholder surplus is limited.”
Additional worries around the cyber market include cyber-attacks. Congress is currently considering whether to renew the Terrorism Risk Insurance Program Reauthorization Act which is set to expire at the end of 2020.
Predictions for the Upcoming Year
As the cyber market matures, more and more resources will be used to build up cyber underwriting while keeping up with the demands and risk of the industry. Yakir Golan, writing 2020 predictions for Forbes in the cyber market predicts that 2020 will be a significant year of change. He believes:
- Increased regulation surrounding cyber risk will drive the cyber insurance market. With over 100 countries in the process of implementing some type of legislation around cyber risk, the focus will definitely increase in the cyber world.
- There will be an intentional rewording of conventional P&C insurance policies to differentiate between cyber risk and regular P&C physical risk. Currently, cyber coverage is often understood to be contained in P&C as a “silent cyber” risk. However, the IUA is already developing wordings to differentiate between cyber risk and other types of risk.
- As the threat of cyberattacks continues to evolve, the scope of these attacks also continues to ask for definition. There will be a number of increased modeled scenarios in order to set up a more diverse set of catastrophes that can happen so coverage can become more precise.
- The parametric cyber insurance area is still in its infancy, but the next year will see exponential growth. Insurers will become more accurate in quantifying emerging cyber risk and therefore able to build parametric product offerings that will transfer their overall cyber risk.
- There will be an overall increased cyber reinsurance capacity. As cyber is further excluded from P&C policies, advances in the development of models will lead to a higher risk appetite from the market.