The realisation of the cyber insurance market’s growth potential is tied to geopolitics and macroeconomics, but also sme penetration, tail-risk management and attracting capital and talent. Wide-ranging cyber coverages have been developed in relatively short order and the market has maintained a strong claims payment record despite the highly dynamic threat landscape.
According to Beinsure Media Cybercrime predictions report, the correction that started in 2020 nevertheless represented a watershed moment for cyber insurance.
Before this period, a stable loss environment encouraged ample capacity, broader coverage terms, and favorable pricing. Subsequently, the insurance market saw the highest annual rate increases. Insurers quickly adjusted their risk appetite and pricing for cyber exposures to counter rising loss costs.
This report has already detailed systemic risk, the primary concern for insurers due to cyber’s aggregation risk and higher capital costs. New policy language now addresses cyber acts of war to manage these risks. The entire insurance value chain must find solutions that satisfy both clients and markets.
While last year’s first half saw over 100% annual rate increases, the same period in 2023 experienced flat renewals or decreases of up to 10%, as prices eased from recent highs.
Cyber insurance penetration varies by region and company size. Although awareness is growing and mid-sized companies are increasing uptake, the market remains dominated by large corporations. For the market to reach its potential, it must meet large buyers’ needs and boost uptake in under-penetrated areas. Some European large buyers are turning to captive solutions due to reduced limits and higher retentions. Brokers and insurers need better strategies to engage SMEs in the cyber market.
According to Cyber Insurance Market Dynamics, pricing increases in recent years, from 2020 onwards especially, have driven the growth of the cyber market, but these tailwinds for insurers are now unwinding or even reversing in certain areas.
Over the past 12 months, the cyber insurance market has shifted significantly. After a period of rising losses, limited capacity, increasing global demand, and a major pricing correction, conditions are stabilizing due to improved underwriting results. Strengthened cyber resilience is benefiting policyholders despite increased ransomware activity in 2023, with underwriting performance holding steady.
Those organizations that closely align their cybersecurity programs to business objectives are 18% more likely to increase their ability to drive revenue growth, increase market share and improve customer satisfaction, trust and employee productivity.
What’s more, organizations that embed key cybersecurity actions into their digital transformation efforts and apply strong cybersecurity operational practices across the organization are nearly six times more likely to experience more effective digital transformations than those that don’t do both.
Recently released Resilience for Reinvention study shows that companies achieving long-term profitable growth display a commitment toward developing a digital core, which consists of three layers: infrastructure and security; data and artificial intelligence (AI); and applications and platforms.
With existing carriers increasing capacity and new entrants joining, the cyber market is becoming more mature. Cyber insurance continues to be the fastest-growing insurance sector, with annualized growth of 30% over the past decade, compared to the single-digit growth in the broader P&C sector. U.S. cyber insurers saw significantly improved underwriting results last year, with most returning to profitability.
Standalone cyber policies performed well in 2022, with the loss ratio dropping to 44% from 65% in 2021. A 60% year-on-year increase in U.S. premiums influenced these results, as losses and defense costs remained stable. Premiums, driven by exposures and pricing, saw a notable shift in 2021 with significant price increases countering underwriting actions and reduced exposures. The correction starting in 2020 marked a pivotal moment for cyber insurance.
Should current growth trends be maintained for the remainder of this decade, an ambitious but feasible scenario given the high level of demand globally and the amount of capacity returning to the market, GWP could exceed USD 50 billion by 2030, rivalling the scale of other major P&C lines of business such as D&O.
The cyber market is the latest example of what the insurance sector has done so well many times over: innovating and developing solutions for the changing needs of clients. Wide-ranging cyber coverages have been developed in relatively short order and the market has maintained a strong claims payment record despite the highly dynamic threat landscape.
Whilst the U.S. will remain the biggest cyber market by some distance, Europe, starting from a much lower base, is expected to close the gap somewhat during this time. Territories seeing particularly robust growth include France, Germany, Israel, Scandinavia and the United Kingdom.
