Canadian Underwriter

Cyber insurance growth expected to triple in a few years, rapid rise would be credit-negative: Fitch Ratings

March 22, 2016   by Canadian Underwriter

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While cyber insurance growth is clearly on the rise – with 2015’s estimated US$3 billion in premiums possibly tripling in four years – the rapid expansion into standalone offerings brings with it concern the move could be credit-negative, suggests a report released Monday by Fitch Ratings.

Rapid expansion of standalone cyber insurance offers may be credit-negative

Global Cyber Insurance Update: Expanding Threats Amplify Underwriting Opportunity, Loss Potential notes that cyber risk insurance is the fastest growing segment in property/casualty insurance industry, cautioning that “cyber attacks pose dangerous risks and uncertainty across industries and insurers’ aggressive expansion into standalone cyber insurance could be credit-negative.”

Fitch Ratings reports in a statement that approximately 50 insurance carriers now offer some form of standalone cyber insurance coverage.

“At this stage, Fitch would view aggressive growth in standalone cyber coverage, or movement to high portfolio concentration in cyber, as ratings negatives,” James Auden, managing director at Fitch, explains in the statement. “Underwriting, pricing and reserving uncertainties currently outweigh the potential earnings growth benefits. Controlled growth as part of a diversified portfolio, coupled with continually enhanced underwriting standards, would generally be neutral to ratings,” Auden contends.

Noting that cyber risks are a broad peril affecting organizations of all sizes and sectors, “insurance losses can materialize from several existing products, including standard commercial liability, property, business interruption and professional liability and potentially several unforeseen product lines,” he says.

Fitch points out that modelling and available data for cyber risk is in its infancy, meaning insurers are challenged when establishing policy terms and pricing risk. “An attack on a power grid or other major infrastructure could have a wider geographic scope than a natural disaster or conventional bomb attack, and a lack of past precedents creates numerous questions regarding claims and coverage,” the statement adds.

Fitch’s view is that the ability of insurers to monitor and evaluate cyber risks will continue to evolve in the short term, opening up new opportunities to meet growing customer demand.

Market limits have been increasing, the rating agency reports, citing figures from Marsh, McLennan Companies, which notes that companies with revenue exceeding US$1 billion purchased 22% higher cyber insurance limits on average in 2014. In general, financial institutions are purchasing the highest limits while education is purchasing the lowest limits being purchased by education.