Cyber-Insurance Premiums Likely To See Hefty Increases through 2021

Cyber-insurance premiums could increase 20 to 50 percent through 2021 due to a combination of 2020 trends that are expected to continue through this year, according to an Aon report.

Among the 2020 trends shaping the cyber insurance market this year were increased claims frequency and severity. In addition, while 2020 pricing increased 5 to 10 percent from its 2019 level, insurers determined that those increases were inadequate to offset the increases in claim frequency and severity.

Finally, insurers began enhancing efforts to identify insureds' cyber vulnerabilities and improve their risk controls as well as taking steps to improve their own risk selection, according to "Aon's Errors & Omissions | Cyber Insurance Snapshot: A Focused View of 2021 Risk & Insurance Challenges."

"To maintain a commitment to long-term stable cyber capacity, insurers are reviewing areas in their portfolios where underwriting action is needed and reevaluating capacity deployment, specifically as it relates to ransomware losses," the report said.

Aon recommended that organizations watch for several risk trends in the year ahead. Among them are uncovered technology errors and omissions (E&O) exposures as organizations accelerate digital transformation initiatives during the COVID-19 pandemic, increased cyber vulnerabilities resulting from a remote workforce, a growing number of data breach regulations, the rise in ransomware attacks and cyber extortion, and vendor risk associated with increased reliance on third-party technology and back-end applications.

In response to risk and loss trends, insurers are adjusting their underwriting approaches, the Aon report said, reviewing terms and conditions and reevaluating how they deploy capacity. And the report noted that in surveying the top 12 insurers in the E&O/cyber space, 58 percent said they are seeking cyber-insurance rate increases of more than 30 percent through this year's second quarter, and none suggested that rate increases would be less than 10 percent year-on-year going into the second quarter.