Cyber insurance may be a fast-changing and relatively new market, but it was profitable in 2016 despite higher loss ratios, according to a new Aon Benfield report.
The U.S. market combined ratio for cyber insurance was an estimated 87.3 in 2016, Aon Benfield found, based on an analysis of data from 138 U.S. insurers (as collated by the National Association of Insurance Commissioners) that underwrote cyber in 2016.
Out of that number, there was a 57.7 loss ratio, which Aon Benfield said was 16.2 percent higher than the 2015 loss ratio of 41.5. According to the report, it is unclear what drove the increase.
“The major cyber claims story of 2016 was ransomware, which some insurers saw quadruple compared with the year prior, yet ransom requests are typically (and intentionally) small, below most policy deductibles,” the Aon Benfield report noted.
What’s more, while the year saw some significant cyber attacks, such as the distributed denial of service attack on Dyn, “the impact on insurers was expected to be minimal since the distributed denial of service duration was well below the standard 12-hour waiting time deductible for business interruption coverage,” according to the report.
Instead, Aon Benfield speculates that the loss ratio hike may have come from either price competition or adverse development on earlier accident years. Another factor that may have contributed to the results: data quality issues.
Cyber Loss Ratios Varied Insurer to Insurer
Though the sector was profitable in 2016, Aon Benfield pointed out that cyber loss results varied widely among individual insurers during the year.
“Loss ratios among the top 29 underwriters varied between zero percent at the low end to 1,525 percent at the high end,” according to the report.
Another cyber trend that became clear in 2016, U.S. cyber premiums grew 30 percent compared to the previous year, to $1.34 billion. Alongside that growth, Aon Benfield pointed out that more insurers are participating in the U.S. cyber market, reducing the market share held by the largest carriers.
The report found that 138 insurers reported writing some cyber premiums in 2016, with 26 writing premium that year that didn’t do so in 2015. Out of that number, 69 insurers wrote more than $1 million in premium, and 29 wrote more than $5 million in premium, all higher than in 2015.
With a more crowded cyber market in the U.S., the top five insurers in the space handled 52 percent of premiums in 2016, down from 61 percent in 2015. The top 10 handled 70 percent of cyber premium in 2016, compared to 80 percent the year before, according to the report.
The full report is called “Cyber Update: 2016 Cyber Insurance Profits and Performance.”
Source: Aon Benfield