MGAs and insurers continue to report increased severity and frequency of cyber claims.
In fact, in-house data shows cyber claims have been increasing for years, said Lindsey Nelson, cyber development leader at CFC Underwriting.
Simultaneously, the take-up of cyber insurance is also seeing an increase.
But given the overall unprofitability of the line, how are underwriters changing the product to make it more sustainable?
Prior to 2021, insurers were mostly willing to offer limits for many lines of coverage up to $5 million, said Danion Beckford, underwriter of professional liability with Burns & Wilcox Canada.
However, insurers have collectively reduced the amount to between $2 million and $3 million, with some items (such as coverage for social engineering) only being offered with limits of up to $250,000.
Insurers are now fully aware that cyber insurance can truly affect their bottom lines.
“The previous pricing was not sustainable, and the product was a harder add-on to clients’ insurance portfolios,” Beckford said. “However, with more cases being reported and becoming more widely known, we continue to see a rise in cyber quotes and purchases.”
For the most part, brokers understand the cyber landscape and can explain the reasoning for price increases at renewals or the initial submission stage to clients, Beckford added.
Insurers have responded to the hardening market in various ways.
“There…will continue to be withdrawals from cyber as a class of business, reduced appetites for poor-performing sectors, and unanimously the recognition that the price hasn’t historically been right and re-adjustments will continue to be made for that,” Nelson told Canadian Underwriter.
Even though businesses understand their largest exposures lie in their intangible assets, they continue to have difficulty accepting this fact financially, Nelson observed.
“Cyber has historically been the smallest proportion of premium spend in the insurance program for most businesses,” she said. “So, as rates are climbing to address what is now a company’s largest exposure, there is an initial reluctance from clients and brokers to view cyber premiums as one of their biggest spends, and the reality is that in all likelihood, [it] will be.”
Looking ahead, it’s fair to say that ransomware attacks and systemic risk — the idea a single event will trigger an aggregation event for thousands of policyholders — will continue to keep underwriters up at night.
“We’ve already seen rates not only responding to make up for unprofitability due to ransomware losses but also to future-proof against future large-scale events,” Nelson said.
This article is excerpted from one that appeared in the Feb.-Mar. issue of Canadian Underwriter and includes files from Greg Meckbach.