Cyber insurance premiums are soaring, but a spike in claims led to a decline in 2020 underwriting performance, according to a new Fitch Ratings update.

Standalone cyber insurance generated an industry statutory direct loss plus defense and cost containment ratio of 73 percent in 2020, up sharply from an average of 42 percent for the previous five years where cyber results were reported in statutory filings. The claims spike happened even as cyber insurance direct written premiums for the P/C industry climbed 22 percent in 2020 to more than $2.7 billion, according to statistics cited by Fitch.

The average paid loss for a closed standalone cyber claim soared to $359,000 in 2020, Fitch said, versus $145,000 in 2019.

“The cyber market faced a reckoning in 2020 as loss experience deteriorated, particularly from an influx of ransomware incidents,” Fitch Ratings Analyst James Auden said in the market update report. “While cyber insurance premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term, given constantly evolving risk exposures and source of loss.”

It’s no secret that cyber insurance continues to generate a story of shifting claims exposures, and Fitch said that the phenomenon continues to create underwriting challenges.

“Cyber risk exposures are constantly evolving with advances in technology and the resourcefulness of hackers,” Fitch notes “Movement to a more virtual work environment in the pandemic strained companies’ information and network security efforts, creating more opportunity for cyber incidents including phishing attacks.”

Even as cyber insurance premiums soar, the market remains concentrated with the top five writers holding a 50 percent market share, and the top 20 writers keeping an 87 percent market share in 2020, Fitch pointed out.

Chubb continues to be the top U.S. cyber writer, with a 15 percent direct market share. AXA XL is second with 11 percent, and American International Group is third with 9 percent, Fitch said. Their rankings remain unchanged from 2019.

A Marsh report recently predicted that commercial cyber insurance rate hikes would rise rapidly for some time, after soaring 35 percent in the U.S. and 29 percent in the U.K. during the 2021 first quarter.

Marsh sees similar factors driving cyber rate hikes , including pandemic-driven working from home and more ransomware attacks.

Source: Fitch Ratings