Cyber Insurers Hike Rates But Worry About Pricing Long-Term As Losses Mount: Fitch
U.S. insurers offering cyber coverage have been implementing significant pricing and underwriting actions in 2021 in response to a spike in cyber claims, according to Fitch Ratings.
Fitch predicts that immediate improvement is unlikely this year from these actions and reports that insurers are worried about the long-term.
Cyber insurance direct written premiums for the property/casualty industry rose sharply 22% last year to over $2.7 billion, reflecting expanding demand for coverage. The industry statutory direct loss plus defense & cost containment (DCC) ratio for standalone cyber insurance rose sharply in 2020 to 73% compared with an average of 42% for the previous five years (2015-2019). The average paid loss for a closed standalone cyber claim moved to $358,000 in 2020 from $145,000 in 2019.
“The cyber market faced a reckoning in 2020, as loss experience deteriorated, particularly from an influx of ransomware incidents,’ said Fitch Managing Director James Auden. ‘While cyber premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term.”
According to Fitch, cyber insurance is a growing but relatively small business line in U.S. P/C insurance, representing less than 1% of industry direct written premiums. Segment market share remains relatively concentrated, with the top five writers holding 50% market share and the top 20 writers maintaining 87% market share in 2020. The top three U.S. cyber writers are unchanged from the prior year: Chubb Limited (15% direct market share); AXA XL (11%); and American International Group, Inc. (AIG, 8%).
Losses tied to ransomware attacks have become more prominent in the last two years with a number of incidents already this year. Fitch said pricing for cyber coverage has increased at an “accelerating rate” over the last two years.
The Council of Insurance Agents & Brokers’ latest market survey indicated renewal pricing on cyber coverage increased by an average of 18% in first-quarter 2021. “The magnitude of rate increases will support future improvement in cyber underwriting results; however, ongoing claims developments will likely dampen immediate progress in 2021,” said Auden.