Cyber premiums in US growing but at a lower pace, says Aon report

Cyber premiums for US insurers have more than doubled in the last four years, from $993m in 2015 to more than $2bn in 2018, according to Aon’s latest US Cyber Market Update. The report states that cyber insurance has been profitable for the large majority of insurers, in spite of the industry seeing cyber catastrophe losses from NotPetya in 2017, with loss ratios remaining low in 2018, with just a slight deterioration. According to Aon: “The main cyber story of 2018 is arguably the lack of a story: US insurers are not growing at the pace they were previously. Certainly, it can be challenging to maintain annual growth rates in excess of 30% – which the industry saw in both 2016 and 2017. Yet the markedly reduced growth in 2018 gives pause and causes us to question whether the cyber insurance industry can live up to the aggressive growth projections that have been made.” The one area that is still growing strongly is in the small commercial cyber market – the report estimates that growth and profitability have outperformed the industry overall. The report states that premiums and market participation are growing modestly. In total, 184 insurers reported writing some cyber premiums in 2018. This was an increase of 14 insurers over 2017, including 21 new insurers writing premiums that were partially offset by mergers and acquisitions. The top five cyber insurers accounted for 53% of direct written premiums. US cyber premiums grew to $2.03bn in 2018, a 10% increase from the prior year. Premiums from package business grew modestly, rising 6% year on year, while standalone cyber premiums grew 14%. Loss ratios remained low in 2018, with slight deterioration The direct incurred industry loss ratio was 35.4% across all policies, with standalone and package business reporting 34.4% and 36.8% respectively, states the report. It adds: “Of course, most insurers remain much more concerned about the potential for aggregating losses yet to come – whether they manifest as affirmative cyber market losses or, more broadly, claims in traditional property-casualty lines arising from silent cyber exposure. At Aon, these are risks we are watching closely.” The 2018 loss ratio increase was primarily due to an increase in claim frequency, the report notes. The average 2018 claim frequency across all companies was 4.2 claims per 1,000 policies, up from 3.5 in 2017. This jump in frequency more than offset a reduction in the claim severity, where the average claim size fell from $56,688 in 2017 to $50,401 in 2018. “This shift toward higher frequency and lower severity reflects many of the claims stories of 2018, including increased activity in ransomware, cryptojacking and formjacking claims,” states the report. According to Aon, in 2018, claims against first-party coverage outnumbered third-party claims, accounting for 68% of all claims. For standalone policies, first-party claims made up 61% of the total, while for package policies, first party was 74% of the total. “This is consistent with what we hear from conversations with our clients, with first-party claims costs accounting for the majority of costs that insurers are paying,” says Aon.

Cyber premiums in US growing but at a lower pace, says Aon report

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