IAIS cyber insurance report highlights growing demand and supervisory response

Global cyber insurance premiums have continued to grow despite tighter terms and conditions and stricter risk selection, according to the International Association of Insurance Supervisors (IAIS). In the 2023 special topic edition of its Global Insurance Market Report, the IAIS says: “An expanding cyberattack surface, growing dependencies on technology, and a complex cyber threat landscape contributed to an increased demand for cyber insurance products, pushing written premiums to record levels in 2021 and improving profitability.” The report notes that supervisors are actively developing and implementing macroprudential supervision frameworks for cyber risks. These include incorporating cyber scenarios in stress tests, collecting data on common vulnerabilities, and supporting international initiatives to enhance the resilience of the financial sector. “Cyber risk has become an important area of focus for insurance supervisors as it poses not only an operational risk but also an underwriting one,” said Vicky Saporta, IAIS executive committee chair. “This report aims to offer a data-driven global perspective on the impact of cyber risk on the insurance sector and the associated supervisory responses.” According to the report, the cyber insurance market saw substantive changes in underwriting controls, including tighter terms and conditions, and stricter risk selection and underwriting standards in response to higher-than-expected ransomware losses in 2020. As a result, says the IAIS, clients not reaching minimum cyber hygiene standards found it harder to secure coverage. The analysis also highlights the potential catastrophic dimension that cyber risk can have and how this can pose insurability issues, says the IAIS, adding that despite this, the severity of claims related to large cyber events has been relatively low compared to those arising from natural disasters. Most insurers in the sample have implemented various cybersecurity measures, indicating a positive awareness and management of their own cyber risk, the report finds, but it notes that the effectiveness of their cybersecurity frameworks is difficult to evaluate due to data gaps and jurisdictional differences. The global shortage of cybersecurity professionals compounds the cyber operational risks that insurers face, the report says. In terms of systemic risk, the cyber underwriting activities of insurers in the sample were not assessed to pose a threat to financial stability, according to the IAIS, largely because the market was too small and tail losses arising from affirmative coverage would have been absorbed with the level of coverage being offered. “Cyber risk is a unique, growing and evolving risk that impacts businesses and broader society”, said Romain Paserot, IAIS acting secretary general. “The IAIS will continue to monitor the global cyber insurance market development and engage with stakeholders on this important topic.” The report is based on data collected through the IAIS’s 2022 global monitoring exercise, and presents an analysis of risks and trends associated with cyber insurance coverage, cyber resilience in the insurance sector and the impact these risks may have on financial stability.

IAIS cyber insurance report highlights growing demand and supervisory response

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