OLDWICK: Direct premiums written in the U.S. cyber insurance market have more than doubled over a four-year span, to $2.0 billion in 2018 from $996 million in 2015, as insurers have increased their writings and expanded product offerings to meet an ever-growing demand, according to a new AM Best special report.

[the_ad id=”31605″]In the new Best’s Market Segment Report, “Cyber Insurers Are Profitable Today, but Wary of Tomorrow’s Risks,” AM Best notes that growth has slowed from the two prior years, when direct premiums written grew by more than 30%. Direct premiums written in 2018 grew by 12.6% compared with the previous year.

However, according to the report, market growth figures likely are understated given that a number of organizations utilize captive insurers to write cyber coverage.

With awareness and demand for cyber coverage growing, insurers have removed cyber coverage from traditional insurance coverage by incorporating cyber exclusions. At the same time, many insurers have expanded product offerings by adding cyber endorsements to commercial packaged policies and business owner’s policies, and packaging cyber coverage with technology errors and omissions policies.

This is pressuring other insurers to follow suit to stay competitive and meet the demands of policyholders. Stricter regulatory environments, led by the General Data Protection Regulation in Europe and similar state-based regulations in the United States, also are driving the market growth.

Highlights from this year’s report include:

The total number of claims increased 39% year over year and exceeded 10 million for the first time in 2018, indicative of the fast-growing cyber market. AM Best believes this is evidence of a growing number of small and medium-sized enterprises purchasing cyber insurance, as smaller companies generally have fewer cyber protections than larger companies, making them more susceptible to cyber incidents;

Chubb INA Group was the top cyber insurer in 2018, ahead of AXA US Group and American International Group, with $325.8 million in cyber direct premiums written, the majority of which were for packaged policies; and

Hartford Insurance Group again held the most cyber policies in force at year-end, with more than half a million.

The cyber insurance line’s underwriting performance remains strong; however, emerging new risks are a constant. Most companies writing cyber insurance remain prudent about their total exposure, and cyber exposure relative to policyholder surplus is limited.

Although underpricing by new market entrants is an industry concern, a systemic event remains the top threat to cyber insurers’ solvency. AM Best still holds that cyber insurance market presents a significant opportunity for insurers.

Capacity also should continue to grow, given that the line’s profitability will undoubtedly attract more new market entrants. AM Best will continue to monitor how insurers are managing their cyber insurance exposures, and whether they are taking into account sufficiently those exposures in their enterprise risk management processes.

Cyber insurance growth without corresponding risk controls would be deemed credit negative.