US Cyber Insurers Taking Action in Response to Spike in Claims

Cyber insurance with woman in white shirt and various digital icons

May 28, 2021 |

Cyber insurance with woman in white shirt and various digital icons

US property and casualty (P&C) insurers writing cyber insurance are responding to spikes in cyber claims by taking significant pricing and underwriting actions, according to Fitch Ratings.

The P&C industry's cyber-insurance direct written premiums increased 22 percent in 2020 to more than $2.7 billion, according to Fitch, reflecting expanded demand for coverage. Meanwhile, the industry's statutory direct loss plus defense and cost containment ratio for stand-alone cyber insurance rose sharply in 2020 to 73 percent, after averaging 42 percent for the previous 5 years.

The average paid loss for a closed stand-alone cyber claim increased to $358,000 in 2020 from $145,000 in 2019, according to the rating agency.

"The cyber market faced a reckoning in 2020, as loss experience deteriorated, particularly from an influx of ransomware incidents," Fitch Managing Director James Auden said in a statement. "While cyber premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term."

Fitch said that cyber insurance is a growing but relatively small business line in US P&C insurance, representing less than 1 percent of industry direct written premiums. Market share in the segment remains concentrated, with the top 5 cyber-insurance writers holding 50 percent of market share and the top 20 writers maintaining 87 percent of market share in 2020.

Losses from ransomware attacks have increased in the last 2 years, with a number of incidents already this year, while pricing for cyber-insurance coverage has increased at an accelerating rate over the last 2 years.

"The magnitude of rate increases will support future improvement in cyber underwriting results; however, ongoing claims developments will likely dampen immediate progress in 2021," said Mr. Auden.

May 28, 2021