Two recent reports have shown that the cyber insurance market is enjoying a period of profitable growth, bringing the benefits of increased stability and competition for buyers.
According to a report from Verisk, the US commercial cyber liability insurance market is expected to reach USD 6.2 billion by 2020, up from around USD 2.5 billion of written premium in 2016. The cyber security firm predicts average annual growth in take-up rates of around 20-30%.
Standalone cyber insurance policies would account for the lion’s share, increasing to USD 4.2 billion by 2020 from USD 1.5 billion in 2016. Cyber cover included in packaged policies is forecast to double from USD 1 billion in 2016 to USD 2 billion by 2020.
Few enterprises today are free from cyber exposure, says Verisk in its report, Sizing the Standalone Commercial Cyber Insurance Market. The number of ransomware and denial-of-service attacks has been growing among organizations of all sizes and across industries, while data theft and privacy breaches pose an ongoing threat to many businesses, it says.
However, recognition of the need for cyber insurance protection from cyber attacks has lagged, especially among small to medium-sized enterprises. That is, until now. Verisk believes that cyber insurance presents an opportunity for commercial insurers if they can get a clear picture of the market and identify niches with potential for growth.
Small and mid-sized accounts will see particular growth as the market matures and cyber coverage becomes a contractual requirement of business to-business relationships in increasing numbers, Verisk says.
The number of small companies (revenues of less than USD 10 million) buying standalone commercial cyber insurance will grow to 242,000 in 2020 from 96,800 in 2016, generating USD 260 million of premium for insurers. Verisk predicts that the number of mid-sized firms (revenues between USD 10 million and USD 250 million) buying cyber insurance is predicted to almost double to 83,300 by 2020, resulting in USD 2.46 billion in direct written premium.
Significantly, the cyber insurance market is growing profitably; according to a recent study by catastrophe risk modelling firm RMS. It estimates that the industry loss ratio for 2016 was 54.6%, a healthy return compared with more mature insurance markets. However, loss ratios vary between insurers, with some reporting single digit loss ratios while others have ratios greater than 150%.
RMS also notes that the cyber insurance market continues to demonstrate consistent growth of around 30% year on year. Some analysts predict that the market could be as large as USD 20 billion by 2025, it says.
A review of cyber insurance policies by RMS suggests the growth in the US has been driven by increased take up from non-traditional purchases of cyber insurance, as well as additional premiums generated from the availability of larger limits. International growth has also played a key part, with several markets demonstrating strong growth including Australia, Japan and the UK.
Long term, RMS expects substantial growth from a broader category of digital risks, not just cyber. Businesses are becoming increasingly reliant on technology to run their operations, and so are increasingly vulnerable to system failures, data losses and cyber attacks, it says.
As the cyber insurance market grows, competition will increase, according to RMS. At present, just five insurers account for 60% of US cyber insurance premiums, but new entrants have been dipping their toes in the market over the last two years - there are now more than 140 insurers reporting cyber premiums.
This increased competition is having an impact, with rates reportedly down over the last 12 months and a general loosening of coverage terms, RMS says.
For more information on cyber insurance, please contact Martin Delaney, Senior Vice President - Leader, Cyber and Risk Management Services at ClientFirst@jltcanada.com.