The outlook for the cyber insurance market is bleak and insurers must immediately reconsider all aspects of their cyber risks, says A.M. Best Co., in a report issued Wednesday.
The report states that to remain a viable long-term partner that manages cyber risk, insurers must reassess aspects including their appetite, risk control, modeling, stress testing and pricing.
The report states that the prospects of the cyber insurance market are bleak due to the rapid exposure growth without adequate risk control; the growing sophistication of cybercriminals who have exploited malware and cyber problems faster than companies that may have been late in protecting themselves and the far-reaching consequences of the cascade effects of cyber risks and the lack of geographical or commercial boundaries.
Although the overall industry is well capitalized, "individual insurance companies that venture into cyber risk without a thorough understanding of the market may find themselves in a vulnerable situation," the report says.
Direct written premium for cyber insurance increased by 22% in 2020 to $ 2.7 billion, reflecting increases in both interest rates and demand, the report says.
Stand-alone policies account for about 60% of premiums, while package policies account for about 95% of current insurance policies, according to the report. [1
buy policies only for cyber risk protection, the report says.
Package policies, which provide coverage through commercial policy claims, "still seem to be the preferred way to market to (SMEs), which do not have the staff to analyze cyber risk themselves and prefer to pool their policies," according to the report.
There was an average annual growth rate of 20% in premiums, which far exceeds commercial lines overall, the report says.The average growth in claims has been 39.2%, which is mainly driven by stand-alone first-party claims, mainly due to the frequency of ransomware attacks, the report says.
The US Government Accountability Office said in a report last month that cyber insurance's continued availability and affordable rates "are still uncertain."