In its latest report, AM Best released findings from its inaugural cyber insurance survey, which gathered responses from 41 of the 60 largest global cyber insurers.
Participating insurers collectively represent approximately $8 billion in premium, representing about half of the estimated global cyber insurance market.
The report found that catastrophe modeling for cyber events remains in early stages. Systemic risk continues to be a key focus for insurers, with many assessing aggregate exposures through catastrophe modeling.
AM Best noted it does not endorse any particular cyber model, whether internal or external, but focuses on management’s understanding of risk and the extent to which companies own and control the assumptions and parameters used in their models.
Among the 41 companies responding, 30 reported using some form of catastrophe modeling. Ten companies reported using only probabilistic models, five used only deterministic models, and 15 employed both approaches.
The survey showed that the majority of cyber insurance policy limits cover businesses with less than $10 million in annual revenue. These small and medium-sized enterprises (SMEs) represent more than 80% of all cyber policies.
The report noted that while individual policy exposures are relatively small, systemic risk can arise if large numbers of these businesses rely on the same cloud providers or shared services, creating the potential for widespread losses if a single service experiences a disruption or cyberattack.
Larger businesses continue to account for a smaller proportion of policies but represent close to 30% of total cyber premium. These companies tend to be higher-profile targets due to the scale of their operations and the volume of customer data they maintain.
Ransomware remains the most common type of claim, with its appeal driven in part by the potential for quick payouts to threat actors.
In recent years, the cyber re/insurance industry has faced significant challenges due to escalating cyber threats, leading to notable loss events and prompting improvements in risk management strategies.
Between 2013 and 2019, Statista reports that the insurance sector experienced the highest share of loss events caused by malicious data breaches, with nearly 40% of incidents attributed to such breaches.
In contrast, the healthcare sector saw malicious data breaches account for 18% of loss events during the same period.
Adapting to these trends, the cyber market has seen rapid premium growth and declining loss ratios, indicating a positive trend in market performance. Fitch reports that, in 2021, earned premium growth exceeded the change in incurred losses, and the standalone cyber loss ratio improved to 65% from 72% the previous year.
Survey data also showed that a large proportion of reported claims were classified under “unknown” coverage types, reflecting ongoing efforts by insurers to refine claims systems and improve classification processes.
AM Best expects the proportion of “unknown” classifications to decline as these processes mature. Among the claims that were categorized by coverage, more than half were related to incident response. This aligns with the continued frequency of ransomware events and business email compromise incidents.
While some policyholders avoid paying ransoms, those that do not often face larger financial losses linked to business interruption rather than the ransom itself. AM Best’s findings indicate that business interruption claims tend to be more costly per claim than incident response claims.
The report noted that effective backups, timely patching and network segmentation are examples of cyber hygiene measures that may help businesses limit the impact of cyber incidents and restore operations more quickly.
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