Will cyber insurance rates double over the next two years?
Prices in the cyber-re / insurance market could increase sharply between 2021 and 2023, in some cases doubling from current levels, according to a report by S&P Global Ratings.
“Depending on the region and [terms and conditions], policyholders could expect rate adjustments of up to 100% because the level of risk has fundamentally changed, ”S&P Global Ratings said last week in its report, Cyber risks in a new era: reinsurers could unlock the cyberinsurance market.
The global COVID-19 pandemic has accelerated digital transformation and increased systemic vulnerabilities, causing cyber-insured losses to skyrocket, S&P said. As a result, the demand for cyber re / insurance coverage has increased dramatically mainly due to a heightened and growing awareness of cyber risks.
“The pandemic has exacerbated the huge cyber insurance protection gap by forcing existing and new customers to request higher limits and more inclusions in their policy terms and conditions,” the report said. “In addition, some insurers offer more advanced services, including value-added assistance services, and we have seen a change from no-affirmative. [“silent” cyber] affirmative (explicit) cyber coverage, leading to a previously unrecognized premium volume.
Given the rise of digitization, the re / insurance industry has seen a substantial recovery in cyber losses, with combined ratios much higher in 2020 and 2021 than in previous years, S&P reported. For example, the combined cyber ratio in the United States increased by more than 20 percentage points to reach 95.4% in 2020, from 74.5% in 2019 (mainly due to the increasing frequency and severity of requests for ransomware and social engineering). Here in Canada, the loss rate for cyber liability was over 100% so far in 2021, the Office of the Superintendent of Financial Institutions recently reported.
To maintain profitability in the long run, S&P said it expects insurers to continue to restructure their cyber insurance offerings – further raising rates and adjusting their terms and conditions, especially exclusions. “Some insurers also intend to lower their payment limits further, especially when contracts include ransomware or business interruption components, the report says.” At the same time, they hope to increase the levels of retention until 2021-2023. “
S&P also said the market would benefit from a more mature retrocession market and the use of insurance-related securities or alternative capital to improve capacity. “The market is facing growing demand, but a limited supply. In our opinion, the lack of capacity could hamper the development of a sustainable cyber-re / insurance market. “
Primary insurers rely heavily on the reinsurance market for cyber insurance as it has a relatively short history compared to the more traditional and mature P&C lines of business. “We estimate that they pass 35-45% of the global cyber premium to reinsurers, with some regional variations,” S&P said.
Most of the cyber reinsurance capacity has been provided by large operators, and S&P expects this concentration to decrease over the next few years as more reinsurers enter the cyber reinsurance market, cautiously increase insurance limits or expand their cyber product line.
Partnerships between reinsurers and primary insurers could also strengthen coverage and provide better balance sheet protection against frequent and high severity losses, as well as facilitate access to cybersecurity-related services, S&P wrote in the report.
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