Cyber Risk and Low Interest Rates are Top Insurer Worries: A.M. Best

Cyber risk has emerged as a top insurance industry concern, though the low interest rate environment remains as a significant worry, A.M. Best found in a new report.

Thirty-one percent of respondents to A.M. Best’s Winter 2015/2016 Insurance Industry Survey rated cyber risk as the most-used word or phrase that industry execs encountered in 2015. Cyber risks led the pack compared to other issues such as the affordable care act (4.8 percent), regulation (3.7 percent) and alternative capital (2.7 percent). The low interest rate environment nearly tied cyber as a top risk, with 29.9 percent of responses ranking “low interest rate environment” as a most commonly used industry phrase.

A.M. Best said that the bulk of its “several hundred” responses came from property/casualty, life & annuity and health insurers, with a small number also coming from surety, reinsurance, credit and term or title insurance.

For P/C insurers specifically, cyber risk was also considered a top risk, with 34.6 percent of all responses pointing to the phrase as highest on people’s minds. Low interest rates for P/C insurers scored at 25.4 percent, A.M. Best said.

A.M. Best said it was not surprising that cyber has become a significant industry worry, “as the media highlights continued attacks from a variety of threats, ranging from individual criminals to purported foreign governments.”

The report noted, however, that “many companies have developed cyber products to protect themselves and their customers from attacks and loss of confidential data.”

Fitch is among analyst firms who have cautioned the insurance industry to not rush toward cyber coverages. In a recent report, Fitch acknowledged that cyber risk is the fastest growing segment in property/casualty insurance, but argued that rapid expansion in cyber risks coverage options is creating problems with insurers’ bottom lines and credit ratings. The reason: cyber risks evolve so quickly that there are uncertainties in underwriting, pricing and adequate reserves for the risk.

Other findings from the survey:

• 48 percent of the P/C sector said they expect a return on equity of 7 percent or less, versus 33.3 percent of life/annuity companies.
• 5.4 percent of respondents said they expect improving economic conditions in 2016. More than 30 percent expect conditions to worsen, and close to 46 percent said they see the economy as remaining stable.
• Just under 49 percent of insurers responding said they use predictive analytics. Of that number, 82.2 percent said they use it for underwriting; 39.7 deploy the tech for claims, and slightly less than 25 percent do so for strategy.

Source: A.M. Best