Demand for cyber risk insurance likely to increase, but pricing it’s a challenge: report

While there is potential for growth in the cyber insurance market, pricing strategies and the evolving nature of cyber risk make effective underwriting a challenge, notes a new report from rating agency A.M. Best.

In the past three or four years, the cyber insurance market has grown by about 80%, mainly because of increased demand as regulatory fines and litigation costs have soared, the report notes.

Still, the line of business is estimated at $1 billion in U.S. gross written premium, leaving opportunity for more growth, the report says.

Insurance penetration is also still low for cyber risks, even though surveys have shown executives perceive such risks as at least moderate threats. A.M. Best says it is aware of 33 companies and several Lloyd’s syndicates currently offering cyber coverage.

Insurers are also now beginning to offer other value added services, such as cybercrime prevention, to their offerings, the report notes.

However, challenges for the market remain, A.M. Best says.

In particular, pricing around cyber risk insurance is a challenge since projecting the cost of losses is difficult, as exposures evolve quickly, the report states.

There is also a short claims history around such losses, as well as not much data reported for cyber risk-related losses, adding to the pricing challenge, it notes. New competitor entering the market also puts pressure on rates, the report suggests.

The cyber insurance market also lacks standard policy language, and coverage often varies among different offerings, the report says. That also makes coverage exclusions more common and policy applications more complex, creating challenges especially for small and medium-sized businesses, it adds.

Still, growing focus on cyber security means the demand for coverage is likely to increase, A.M. Best says, adding that it doesn’t expect to take any rating actions in connection to cyber liability business in the short term.