Cyber Insurance Market Remains Untested Amid Slowing Growth

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

"After several years of brisk growth, US 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 take-up rates for cyber coverage and potential for further market expansion. The United States 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 European Union'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.

Stand-alone cyber insurance premiums grew 12 percent in 2018, according to insurer statutory financial data in the National Association of Insurance Commissioners 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 stand-alone policies remained consistently favorable at 34 percent in 2018 from 35 percent 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 and looser underwriting terms and conditions and attract naive capacity, all of which could cause significant disruptions to this immature and untested market," Mr. Glombicki added.

Market concentration in US cyber insurance remains relatively concentrated, with the top 10 writers holding 71 percent 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.