Cyber Insurance Growth Slows, Market Remains Untested: Fitch

The cyber insurance market remains a source of growth for U.S. property/casualty insurers; however, that growth is slowing, according to Fitch Ratings. The industry's total direct written cyber premiums grew 8% in 2018 to $2 billion, down from 37% growth in 2017.

Source: Fitch Ratings | Published on May 15, 2019

Hacker using laptop. Hacking the Internet.

"After several years of brisk growth, U.S. cyber insurance segment revenue moderated in 2018," said Gerry Glombicki, Director of Insurance at Fitch Ratings. "However we continue to believe that high profile cyber events, desire for more sophisticated risk management and improved pricing will buoy the segment in the long term."

Reports from insurance brokers and other market experts show gradual increases in takeup rates for cyber coverage, and potential for further market expansion. The U.S. is by far the largest market in the world for cyber coverage. Effects in Europe and other jurisdictions of regulatory and legal requirements, such as the EU's Global Data Protection Regulation (GDPR), to manage and protect private and sensitive data or endure significant fines and penalties, are also spurring more interest in cyber risk management and coverage.

Standalone cyber insurance premiums grew 12% in 2018 according to insurer statutory financial data in the 'Cybersecurity and Identity Theft Insurance Coverage Supplement.' High profile cyber events and previous uncertainty around cyber terms in commercial insurance policies continue to demonstrate the need for coverage. Insurers are addressing silent cyber risks by adding affirmative coverage in policies, including sublimits and cyber endorsements, but these efforts vary widely among individual companies.

To date, the cyber market has shown strong profitability. Statutory industry direct loss ratios for standalone policies remained consistently favourable at 34% in 2018 from 35% in 2017, but this does not necessarily confirm similar results going forward. Limited historical claims data present challenges for new underwriters. Insurers that ultimately do underwrite cyber policies face tremendous uncertainty in measuring the likelihood and ultimate cost of potential cyber events, which can range from attacks to energy infrastructure to ransomware or cloud attacks.

"Fitch has concerns that favorable results could promote price competition, looser underwriting terms and conditions, and attract naive capacity, all which could cause significant disruptions to this immature and untested market," Glombicki added.

Market concentration in U.S. cyber insurance remains relatively concentrated with the top 10 writers holding 71% market share in 2018. Changes in market share rankings were limited year-over-year. Chubb Limited continues as market leader for stand-alone and package cyber premiums combined.