Businesses are catching on to the critical nature of this coverage, but there is a long way to go.
The cyber insurance market represents a relatively new environment which comes with a high risk level. This requires insurance companies to use a cautious and meticulous strategy supported by reinsurance, according to a Moody’s Investors Service report.
While the market growth is taking off, it still represents only a small fraction of the industry’s revenue.
The cyber insurance market experienced a 26 percent cumulative annual growth rate in direct premiums since 2015. In fact, its direct premiums broke the $2 billion mark for the first time last year. Still, even with that substantial growth rate, those premiums still represent less than 1 percent of the industry-wide premium revenue in the United States, said the Moody’s report.
According to Moody’s data, even as 40 insurance groups in the United States underwrite cyber products as stand-alone coverage, the cyber insurance market is wedged in a very specific place among the largest commercial insurers. Leading the way are Chub Ltd (with 16.3 percent of the market) and Axa SA (with 12.8 percent).
Still, this reveals continued and considerable growth potential in the cyber insurance market.
“Growth prospects for cyber insurance are promising given the changing nature of the risk, the pervasiveness of technology, the value of insurance as a risk management tool and expanding regulation, all of which are driving demand for coverage,” said the Moody’s report.
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At the same time, attempting to assess the risks associated with insuring in this category is complex. Moreover, it remains quite new in terms of the insurance industry’s typical use of history for trends modeling. As litigation becomes more commonplace, insurers will increasingly define the way in which exclusions from the standard property/casualty policies will apply to cyber attacks. It will also help to determine who has the legal basis for suing for damages in cyber attack cases which result in personal data theft, said the report.
“Unique difficulties remain for underwriting cyber insurance,” explained the report. “A lack of uniform policy wording and the evolving nature of risk constrain the growth of cyber insurance as a separate product.”
As this evolution continues, the cyber insurance market is expected to continue at a substantial growth rate. This will eventually push this sector into a more meaningful revenue situation for the overall insurance industry.