Cyber insurance to see growth, but downsides remain – OAC

Demand still on the uptick as AI-driven trends dominate

Cyber insurance to see growth, but downsides remain – OAC


By Kenneth Araullo

Cyber insurance’s global gross premium volume witnessed a yearly increase exceeding 20% from 2019 to 2021, with projections indicating a surge in demand over the coming decade. However, this growth is not without its downsides, as revealed in the latest study from an actuarial consultancy.

The recent Insurance Risk Monitor from OAC places a spotlight on the cyber insurance segment, delineating its growth trajectory and identifying critical factors influencing the current market and risk landscape. Analysts predict that annual premium growth rates for the sector could reach up to 25%.

The uptick in demand spans various sectors, particularly those handling sensitive data, conducting electronic transactions, and offering online services. Additionally, entities responsible for critical infrastructure are increasingly leveraging insurance expertise to navigate the aftermath of cyber incidents.

According to OAC’s non-life consulting team, despite a competitive rating environment, market dynamics are considered healthy, with current rates deemed sufficient for sustaining underwriting profitability.

The introduction of exclusions for state-sponsored cyberattacks in standalone cyber policies as of August 2022 led to some clients moving away from Lloyd’s to alternative markets. Nonetheless, OAC observed that this shift has not notably affected overall premium volume growth, suggesting an enhancement in rate adequacy by addressing significant risk factors without a considerable impact on rates.

Worsening risk profiles for cyber insurers

OAC’s analysis also points to a worsening risk profile for cyber insurers in recent years, primarily due to several factors heightening the likelihood and potential severity of major loss events.

Among these concerns are the enhanced capabilities of cyber-criminals through generative AI, the challenges posed by an increasing number of connected devices, the systemic risks from digital interconnectedness, and geopolitical tensions exacerbating the risk of cyberattacks.

Furthermore, the advent of quantum computing also presents a formidable long-term threat, with its potential to compromise advanced encryption systems, thereby endangering the stability of national and global financial systems.

Bharat Raj, head of London Markets at OAC, highlighted the cyber insurance market’s continued allure for existing and new players, citing growth and profitability prospects.

“Engagement with your policyholders, coverholders and cedants is key to ensuring strong underwriting performance,” Raj said. “Policyholders and cedants increasingly look to their insurance partners for expertise and advice for mitigating cyber risk in the first place. Working collaboratively generally pays dividends as it can help drive improvements in the claims experience and premium rates as policyholders appreciate the value-added services on offer.”

Raj also noted the pivotal role of actuaries and risk managers in adapting to the evolving risk landscape.

“Actuaries and risk managers are uniquely placed to help insurers understand the downside risk and drivers of loss accumulation across the cyber portfolio. Various vendor models have emerged for cyber insurance but these are still at a nascent stage and have not yet reached the same maturity as natural catastrophe models,” Raj said.

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