U.S. cyber insurance premiums doubled over the previous five years, climbing 21 percent in 2020 alone, a new Aon study has found. At the same time, loss ratios have soared.
Premiums in the sector reached $2.74 billion in 2020, compared to $1.35 billion in 2016, and $2.26 billion in 2019.
At the same time, the overall industry loss ratio increased from 2019 by 22 percent (from 44.9 percent to 67.0 percent), primarily due to an increase in the severity of ransomware claims, which included heightened incident response costs and extortion demands. Claim frequency remained steady, averaging 5.62 claims per 1,000 policies (2019: 5.61 claims), Aon said.
Both the Standalone and Package segments saw their highest loss ratios since data collection began in 2015, according to the report. Standalone cyber policies recording a 25.7 percentage point increase (from 47.1 percent to 72.8 percent), and Package policies a 16.4 percentage point increase (from 42.3 percent to 58.6 percent).
Meanwhile, cyber rates increased by 2.5 percent on average during the 2020 financial year, according to Aon’s calculations. These numbers generally correspond to the time just before insurers took significant steps to address ransomware trends, including rate increases and underwriting actions later in 2020 and early 2021.
Jon Laux, Aon’s Head of Cyber Analytics for Reinsurance Solutions, said that cyber insurer rate hikes over the coming months will prove whether insurers “putting a price on risks” helps improve cybersecurity practices and reduces the cost of cyber attacks.
“Insurers are pursuing many interesting tactics to address the claims environment, even as we see new developments opening in the threat environment,” Laux noted in prepared remarks.
Analysts looking at the cyber insurance market see some risk in the cyber market’s prospects.
A recent Fitch ratings report noted premiums in the sector are soaring, but pointed out a spike in claims led to a decline in 2020 underwriting performance.
The cyber risk hazard environment – everything from ransomware, business interruption and aggregation, has worsened significantly, making prospects for the U.S. market particularly grim. To address this, insurers need to reassess all aspects of their cyber risk in order to maintain long-term viability in the market, a recent A.M. Best report found.
Earlier this year, Marsh also agreed in a new report that cyber insurance prices are soaring much more than usual. Meredith Schnur, Marsh’s U.S. & Canada Cyber Brokerage leader, said rate hikes will continue for some time to come, in part because of escalating ransomware events and the claims that radiate from attacks on businesses.
She said that cyber insurance remains stable overall, however, despite rapid rate hikes, as it goes through growing pains like any other type of coverage.