US Cyber-Insurance Market Poised for Favorable 2023 Results

The US cyber-insurance market is expected to continue to see premium growth and favorable underwriting results through 2023, though prices will likely continue to moderate this year in response to recent profits and competitive factors, according to Fitch Ratings.

Average cyber-insurance premium rate increases at renewal have slowed, the rating agency said, with a 15 percent quarter-over-quarter increase in the fourth quarter of 2022, down considerably from a record 34 percent increase in the fourth quarter of 2021, according to market survey results from the Council of Insurance Agents & Brokers.

Fitch estimates that the US cyber-insurance industry's direct written premiums for cyber coverage in standalone and package policies increased by more than 50 percent in 2022 to $7.2 billion, following premium growth of 73 percent in 2021.

Standalone cyber coverage, which represents approximately 70 percent of industry premiums, increased by 62 percent in 2022, Fitch said.

Increased policyholder awareness of the cyber threat continues to drive demand for cyber insurance, the rating agency said. Meanwhile, rapid recent premium growth and a reduction in claims experience in 2022 led to a strong recovery in US cyber insurers' results following two consecutive years of more elevated loss ratios.

Fitch attributed to the improved conditions for cyber insurers in part to a moderation in ransomware incidents, increased awareness of cyber risk at executive levels, and more stringent enforcement of cyber-hygiene standards by insurance companies.

"The improvement in direct cyber results also reflects a more cautious approach by insurers to underwriting and risk selection, resulting in sharply higher premium rates in the last 2 years," a Fitch statement said. "Insurers serve a role in promoting effective cyber-risk management practices for policyholders and have become more insistent that insureds demonstrate practices that include use of dual-factor authentication, diligent system updates and patches, and frequent employee cyber training as part of the application process."

Fitch noted that the claims environment for cyber insurance remains more uncertain than that for other property-casualty insurance products, due in part to the rapid pace of technological change and the potential for new types of cyber incidents.

"Underwriters and modeling experts are active in developing tools to measure and manage risk aggregations and large loss exposures, but the nature and probability of loss of various potential cyber catastrophes remain highly difficult to project," Fitch said.