A new report has revealed that while there is large potential for this market, price is still a barrier.
According to a report released by A.M. Best, the rating agency, there is tremendous growth potential in the cyber insurance market, but the evolving nature of the risk of digital attacks and the pricing strategies currently used are posing a sizeable underwriting challenge.
Over the past handful of years, there has already been a massive increase in this market.
The size of the cyber insurance market has grown by approximately 80 percent over the last three to four years. This is primarily due to the rise in the demand for the protection as litigation costs and regulatory fines have skyrocketed, said the report.
At the same time, the report said the opportunity for more cyber insurance growth is wide open.
The line of business is currently estimated to be $1 billion in the United States for gross written cyber insurance premium. However, the report also points out that this still leaves a great deal of room for the market to grow. Furthermore, it also points out that coverage penetration currently remains quite low for digital attacks. However, as executives are now beginning to see these attacks as at least moderate risks, a larger number will start to consider – and purchase – the policies needed to protect themselves.
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A.M. Best stated that it is aware of 33 different insurers and a number of syndicates of Lloyd’s that are already offering cyber insurance. These firms are also starting to boost their policy offerings with value added services such as prevention features, said the report.
At the same time, A.M. Best identified a number of challenges that remain in the cyber insurance market that are creating a barrier to maximizing its potential. This is especially true in terms of pricing the policies, as it is very difficult to be able to project the cost of the losses that would be associated with one of these attacks and because exposures are constantly and rapidly evolving. Moreover, the claims history around this type of loss remains quite short, and very little data has been reported about this type of loss, only making pricing more challenging, says the report.
As more competition makes its way into the cyber insurance market, rates are constantly under pressure.