COVID-19 Pandemic's Economic Fallout Will Test Cyber Insurance Market
April 30, 2020
While property-casualty (P&C) insurers continue to view cyber insurance as an attractive growth opportunity, economic fallout from the COVID-19 pandemic will test the US cyber insurance market, according to Fitch Ratings.
The economic fallout from COVID-19 will likely affect recent premium revenue trends and the industry's claims experience, Fitch Ratings said.
"Cyber insurance continues to be a small but profitable market, representing a modest portion of premium risk for individual P&C insurers," a Fitch Ratings commentary said. "However, a large unforeseen cyber event, such as a massive cloud intrusion or attack on infrastructure, could result in substantial individual incurred losses that could pressure capital levels and individual ratings."
Cyber insurance direct written premiums grew by 12 percent in 2019 to over $2.2 billion, Fitch said, with $1.3 billion in stand-alone cyber direct premiums written during the year.
Fitch Ratings noted, however, that 2020 premium growth in the cyber insurance segment will be tempered by reductions in underwriting exposures related to the economic downturn resulting from the COVID-19 pandemic. Buyers' cyber coverage purchase practices may change significantly in the near term due to strains on corporate budgets and profits, the rating agency said.
"Cyber insurance remains a profitable niche segment for US insurers, though Fitch believes that cyber underwriting performance will deteriorate as underwriting exposure grows, coverage broadens, and the nature of cyber claims evolves," the Fitch commentary said. "Newer market entrants face challenges in meeting performance of longer-term players due to limited historical pricing and claims information."
The Fitch commentary noted that cyber insurers' claims experiences are evolving with changes in technology and the business environment. Meanwhile, more stringent privacy and data protection legislation is leading to large fines and penalties related to cyber incidents.
Data breaches remain the primary source of cyber claims, though losses tied to ransomware attacks have become more prominent in the past 2years, Fitch said. "The recent shift toward more remote work environments is putting a strain on companies' information security efforts that could lead to more cyber incidents in the near term from network intrusions and more sophisticated phishing tactics," Fitch said.
April 30, 2020