There exists a “cautious optimism” that rate increases in the cyber insurance market will stabilise and insurers will recognise strong cyber hygiene controls, according to a new US and Canada cyber market update by Marsh.
The update for the second quarter of 2022 notes that the market over the past two years has seen a high volume of claims, severe losses, accelerating rates, reduced insurer appetite, and an increased focus on accumulation risks.
However, perceptions of cyber risk among insureds has shifted, as geopolitical tensions, digital connectivity and the antagonistic nature of threat actors have heightened the potential that they could be the victim of a cyberattack.
In addition, perceptions have changed among insurers as major cyber events are no longer considered rare. For example, many have adjusted pricing to reflect the increased frequency and severity of cyber risk.
Marsh notes there is now a sense of cautious optimism that rapid rate increases are beginning to moderate for a variety of reasons, such as better control of attritional losses, and premium growth exceeding incurred losses.
In addition, as underwriters gain more confidence in pricing cyber coverage following a period of competition, this will increase competition in the market and encourage rate moderation.
As more industries are impacted by cyberattacks outside of the particularly vulnerable healthcare, communications and technology sectors, this highlights the need for increased protection in the form of both improved cyber hygiene and risk transfer programmes, which will in turn improve overall pricing.
Marsh adds that the environment of increased prices and difficulty securing coverage has motivated some companies to seek alternative sources of coverage; namely, captives.
This is particularly observed in the healthcare, financial services, retail and manufacturing industries.
Marsh notes the number of its managed captives writing cyber has more than doubled over the last five years as clients look for alternative ways to utilise captives to best fit their needs. For example, a captive can be used for retention purposes when purchasing larger limits, or to offset a significant rate increase, or to fill missing capacity in a programme.
The market update concludes: “It appears rates are starting to moderate, contributing to the sense of cautious optimism about the future of cyber coverage. As companies continue to focus on and improve their cyber hygiene controls, insurers can be expected to calibrate their underwriting and pricing strategies on an account-by-account basis — rather than on a portfolio-basis — and reward clients with strong cyber hygiene.”
