Best says cyber market to remain soft but could turn rapidly on major incident
Cyber premiums set to surpass D&O
Softer rates for cyber insurance “could turn quickly” on the back of one major incident, according to AM Best senior analyst Chris Graham.
Speaking at the Professional Liability Underwriting Society’s (PLUS) Cyber Symposium in the US earlier this month, Graham said rates for cyber cover are likely to remain soft for some time. Even where rates are increasing they are not keeping pace with inflation, although the line remains profitable, he explained.
But the market has yet to experience the impact of a major cyber incident. “One incident could turn [the market] quickly… we haven’t had one large industry event yet that could really test the capacity of the market. So, that’s still out there looming.”
He asked: “What type of loss would it be before it moves from an earnings event into a capital event?”
Graham said demand for cyber insurance is likely to see it overtake directors’ and officers’ insurance in terms of premium volume when figures for 2023 are finalised.
“Cyber is going to keep growing. It’s not going to surprise me at all if a month from now, when we have all the annual statements from all the insurers and all the data in, that cyber would be heavier premium than D&O,” Graham said.
Growth will be driven by demand, rather than price increases, he added.
“There’s going to be demand coming everywhere and that’s really where the opportunity is going to come. Pricing has softened in part because of all the corrections that were put into the policies after the ransomware spike of 2020 through early 2022, but it wasn’t just the pricing that was corrected. A lot of policy language, a lot of multi-factor authentication became necessary. There was basically a clean-up of cyber hygiene,” Graham said.
He said that about half of cyber premiums are reinsured, much higher than the industry average across P&C lines, which helps the sector provide enough capacity. At the same time, cyber claims have become less severe, even though claims frequency has recently seen an uptick, he added.
