The performance of cyber insurers will likely improve as prices rise and underwriting standards tighten, according to Fitch. Nonetheless, the loss experience of the cyber-insurance segment will most likely remain more volatile than that of other property-casualty lines.
"Cyber risk is a growing critical concern for organizations and public entities around the world, as utilization and reliance on information technology and digital devices grows," according to a Fitch statement. "Network intrusions, malware, and phishing activity continue unabated." The recent increase in ransomware incidents necessitates the development of new protection and defensive strategies."
Property-casualty insurance companies, Fitch says, are a valuable resource for businesses looking to address cyber risk. In addition to indemnification against liability and other losses, insurers offer policyholder risk assessment and mitigation services, as well as loss remediation and recovery assistance in the aftermath of cyber events.
Annual cyber insurance premiums range between $8 billion and $10 billion, Fitch reports. According to the rating agency, industry experts predict that annual premiums will reach $22.5 billion by 2025 as demand for coverage grows and threats become more visible. According to Fitch, the United States has the largest cyber-insurance market, with $5 billion in statutory direct written premiums and 74% annual premium growth in 2021.
"Measuring cumulative loss risk for a cyber portfolio is difficult because risk can be concentrated in a small group of vendors or software and is not geographically limited," Fitch said. "Larger losses prompted insurers to revise underwriting policy guidelines, increase policy retentions, and review policy limits and language to assist in managing and mitigating systemic exposures."
According to Fitch, core infrastructure vulnerable to cyber attacks is a potential source of large losses, increasing the demand for protection and risk mitigation.