Signs for "Cautious Optimism" Emerging in Cyber-Insurance Market

While the cyber-insurance market has been one of the most challenging segments of the commercial lines space, there's a reason for "cautious optimism" that rates will stabilize and insurers will reward buyers' cyber-hygiene efforts, a new report from Marsh suggests.

In its "Q2 2022 US and Canada Cyber Market Update," Marsh notes that over the past 2 years, the cyber-insurance market has seen a high volume of claims, severe losses, increasing rates, reduced insurer appetite, and an increased focus on accumulation risks.

As geopolitical tensions, digital interconnectivity, and the adversarial nature of cyber-threat actors have grown, insurance buyers have become more aware of their risk of being cyber-attack victims, Marsh said. Meanwhile, cyber insurers have also recognized the growing risk and have adjusted their pricing to reflect increases in frequency and severity.

Cyber-insurance market conditions are expected to remain challenging for the foreseeable future, given insurers' concerns about risk accumulation and systemic risks. "But there is an increasing sense of cautious optimism that the steep rate increases of the past several quarters are moderating as attritional losses are better controlled and premium growth exceeds incurred losses," Marsh said. "This is happening at a time when many organizations, affected by steep pricing increases and restricted capacity, have focused on strengthening their cyber hygiene controls."

In addition, as underwriters gain increased confidence in pricing cyber insurance, there is increased competition and interest in the market from new entrants, further increasing the likelihood that rates will moderate, Marsh said.

"Persistently high claims rates have accelerated pricing pressures, and even clients with no losses and good cyber hygiene controls have seen rate increases during the past several quarters," Marsh said. "Yet, while rate increases are still challenging many clients, we are starting to see a consistent downward movement from the record rate increases of December 2021 for clients both in the US and Canada, fueling optimism that the market is entering a time of rate stabilization."

Marsh noted, however, that those lower increases are typically only being seen by buyers that can demonstrate strong cyber-risk controls, as cyber-insurance underwriters have become more selective about the risks they're willing to cover.