The cyber insurance market continues to display both tremendous growth and enormous opportunity for the U.S. property/casualty insurance industry as demand continues to soar, according to a new Fitch Ratings report.
Fitch found that standalone cyber direct written premiums grew 7 percent in 2017, hitting $986 million. Standalone and package cyber premiums combined jumped by 54 percent, landing at $2.1 billion for the year.
What’s driving the soaring demand? Fitch said that “continued high-profile cyber incidents” are leaving small and larger businesses and organizations increasingly seeking a comprehensive approach to both managing network intrusions and data theft. With that in mind, cyber-specific coverage is seen as addressing both concerns, Fitch said, “along with measures to boost network security, loss prevention activity and event response preparation.” As well, tougher cyber regulatory standards for financial institutions and other industries are spurring demand for cyber coverage that meets these new rules.
With increasing competition, the cyber insurance market is a buyers’ market. Fitch said that 75 insurers wrote more than $1 million each in annual cyber premiums in 2017. The ratings agency also said that “various market pricing surveys” point to cyber premium renewal rates being either flat or down, “indicating that market underwriting capacity is meeting or exceeding demand.”
Also, Fitch said that the industry statutory direct loss ratio for standalone cyber insurance was 35 for 2017, down significantly from 43 the previous year. Fitch argued that the result shows “strong underlying profitability thus far in the cyber market,” though it noted that direct results don’t include all claims and underwriting expenses.
Beware of New Capacity
With growth of the cyber market comes concern, however.
Fitch said that good results in cyber market growth combined with expanded coverage points to a risk of new capacity coming to the market. That new capacity could be suspect, Fitch suggested, because “these companies rapidly grow premiums without sufficient underwriting, claims and product expertise, setting the stage for some carriers to suffer outsized losses from cyber insurance.”
Market leaders in the cyber insurance space include AXIS Capital Holdings (16 percent direct market share), Chubb (15 percent) and AIG (11 percent). Fitch added that AIG continues to be the biggest standalone cyber insurance writer.
Fitch’s full report is titled “U.S. Cyber Insurance Market Share and Performance: Premium Growth and Profits Continue in 2017.”
Source: Fitch Ratings