E&O and cyber price increases to continue, amid greater scrutiny in placement process

Errors and omissions (E&O) and cyber insurance will continue to see severe price increases in the first half of 2022, with a possible stabilisation in the second half of the year, and there will be new scrutiny, applications and underwriting questions brought into the placement process, according to Aon. Aon’s global 2022 Errors & Omissions (E&O) and Cyber Market Review states: “As further challenges are expected in the E&O and cyber marketplace in 2022, it is crucial that organisations take steps to understand claim trends, their impact on insurers and how to best enter the market when securing coverage.” Aon said managing the cyber risk landscape is increasingly complex, and although there was a slight reduction in the frequency of cyber claims throughout 2021, they have risen dramatically since 2018. And in a recent Aon survey, participants around the globe rated the risk of cyberattacks/data breaches as the number one threat facing companies today. The E&O/cyber report notes that as of December 2021, E&O and cyber monthly pricing increased by 137.3% year over year. It says that as clients continued to see dramatic pricing increases, E&O and cyber insurance placement also often required a much more involved underwriting process. “It is no surprise that cyber resilience, privacy compliance, third-party risk and contractual risk will remain front and centre for both underwriters and businesses around the world in 2022,” said Christian Hoffman, global cyber leader at Aon. “As we work to prepare our clients for increased volatility and intensified cyber risks, we encourage decision-makers to develop and maintain a long-term vision. E&O and cyber exposures will continue to be a top risk for companies. It’s important that business leaders align their cyber insurance programme strategy with their continued cyber maturity efforts, so they can make better decisions today and in the future.” According to the report, insurers are reviewing their overall exposure to systemic, aggregated and correlated risks related to the software supply chain in recent months. It notes that several insurers “are reviewing the breadth of coverage afforded for business interruption losses, with a focus on limiting their financial exposure to a systemic event by reconsidering waiting periods and restricting aggregate limit exposure”. The broker says insurers list a lack of multi-factor authentication, endpoint detection and response measures, and backups, as criteria for refusal of coverage. And they are expected to shift focus to systemic and correlated risk concerns. “Supply chain attack strategies and geopolitical tensions, paired with the reliance many companies have on common technology service providers, will likely drive a focus on war exclusions and infrastructure language in cyber policies,” the report states. Captives to play a valuable role The report includes a section on the role of captives, which according to Aon “can provide short-term relief from cost pressures by reducing premium outflow while bringing longer-term programme sustainability, by using profits accrued to help build a more self-sufficient risk financing dynamic”, adding: “The principal benefits of this approach are essentially replacing insurer capital when it becomes overly expensive with organisational capital and concentrating the risk transfer budget on the volatility that may be otherwise intolerable to the organisation’s balance sheet.” Aon says that its survey on captive utilisation for cyber found that organisations, to date, have not embraced the role that a coordinated retention financing approach for cyber can play, but this will likely change as the market continues to impose discipline. The report explains: “Utilising risk bursaries for risk remediation and quantification projects as a way for organisations to prioritise budgetary spend most effectively across mitigation, retention and transfer will enhance the ability of a captive to play a meaningful role in the cyber risk conversation.” And it adds: “Cyber, although no longer emerging, can still be considered in the ‘incubation’ phase for captives, mainly because the traditional risk management approach and the network security communities are not yet fully aligned. However, reframing the captive from a tactical, transactional play to something linked to the broader maturity development of risk will help accelerate this alignment.”

E&O and cyber price increases to continue, amid greater scrutiny in placement process

Aon report highlights importance of resilience and role of captives

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles