US Cyber Insurers Experiencing Rapid Premium Growth

The rise in cyber incidents, notably ransomware attacks, has led to cyber insurance becoming the fastest-growing product segment in the US property-casualty insurance market, according to Fitch Ratings.

While that increase in cyber incidents has led to a greater number of claims and increased loss severity over the past 2 years, cyber insurers' near-term underwriting results are supported by continued strong earned premium growth and an ongoing trend of premium increases, Fitch said.

"However, the risk of a systemic cyber incident or several large cyber catastrophes over the near term cannot be discounted, as the frequency and severity of attacks are unlikely to subside and companies continue to expand their digital footprints," the rating agency said in a statement.

Fitch said that data from cyber-insurance supplemental filings in insurers' statutory financial statements shows an acceleration in market premiums relative to already strong premium growth. "A sharp increase in 2020 cyber loss ratios promoted substantially higher prices and rapid premium growth in 2021 that exceeded incurred losses, leading to surprising improvement in the cyber direct loss ratios versus the previous year," Fitch said.

The rating agency estimated that stand-alone and packaged statutory cyber-insurance direct written premiums increased by 74 percent in 2021 to nearly $5 billion compared to 9 percent growth for the property-casualty industry overall. That increase in cyber-insurance premiums was driven by heightened policyholder awareness of the risk and increased demand for cyber coverage, Fitch said.

Stand-alone cyber coverage, which represents approximately two-thirds of industry cyber-insurance premiums, according to Fitch, increased by 92 percent in 2021.

"Stand-alone coverage will expand further as a proportion of industry cyber premiums as insurers strive to reduce exposure to 'silent' cyber risks and minimize any ambiguity in coverage terms," Fitch said. "However, a large portion of cyber risk remains uninsured."