Insurers have significantly increased premiums for cyber coverage during 2021 as a series of high-profile attacks and government actions have helped boost demand for products, according to data collected by industry bodies.
According to information provided by the National Association of Insurance Commissioners, Industry Supervisors, and compiled by rating companies, in 2021 the largest U.S. insurance operators collected direct premiums increased by 92% over the same period last year.
Analysts say the increase primarily reflects higher rates rather than insurers, which significantly increase the amount of money they are willing to cover.
“The amount of interest rates in this market is very strange, just in terms of the interest rates,” said Tim Zawacki, chief analyst at the study.
S&P Global Inc.
Business Market Intelligence.
Rising prices have helped the U.S. cyber insurance industry reduce its direct loss ratio or the percentage of income it pays to claimants, to 65.4% in 2021 from a record 72.5% in 2020. However, this figure is still far above the direct loss ratio in 2019 of 47.1%.
Sometimes the sharp rise in rates reflects a restructuring of a relatively new market that is maturing rapidly, executives say, suggesting that the insurance industry is beginning to fight cyber-pricing risks.
“Cyber risk insurance premiums are becoming correct after many years of easing market conditions, despite the evolution of cyber underwriting,” said Jack Coaddale, CEO of Cowbell Cyber Inc.
Part of the reset includes tougher criteria for those eligible for coverage, an approach endorsed by the White House as it makes a broader push to enhance private sector security. Many operators are now requiring potential customers to demonstrate that they comply with at least basic cyber hygiene, including measures such as multifactor authentication.
“Now that you can’t demonstrate some basic control, the vast majority of the market will say no,” said Adam Lentrip, senior vice president and head of professional and cyber-decision practices at CAC Specialty Insurance Brokerage.
Market turbulence intensified after the Colonial Pipeline Co hack. in May 2021, insurance experts say. The incident highlighted a surge of costly ransomware attacks that disrupted business and sparked a wave of new cyber rules in Washington.
In addition to rising prices last year, Mr Lentrip said, many carriers have cut back on what their policies covered. This has led companies to need more policies – and more paperwork – to maintain the same amount of insurance in dollars.
Mr. Lentrip’s firm is now devoting four to six months to its clients to remove all the hurdles needed to update their plans.
“It gets almost to the point where the deals never fall asleep,” Mr Lentrip said.
As the insurance industry has in recent months adapted to the risk of criminal hacking groups, some carriers have also moved on to clarify exceptions to hostilities for conflicts such as Russia’s invasion of Ukraine. The Lloyd’s Market Association trade group in November proposed a new wording to exclude cyber threats from property and victim policies.
The exact language of such exceptions – and how they are interpreted in court – can be costly for insurers or companies as more and more armed conflicts spread to the digital realm.
Although the war in Ukraine involved a series of cyberattacks, mostly by ineffective Kremlin-linked hackers, security experts warn that operations by non-state actors on both sides of the conflict could widen the legal gray area around what is spreading. and does not apply to insurance.
“It’s not always clear what war is today,” said John Bateman, a senior fellow at the Carnegie Endowment for International Peace’s Technology and International Affairs program. “In the insurance community, they are willing to take on different tendencies to expose themselves to state-sponsored cyber risk.”
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