By Asishana John
Fitch Ratings has said as underwriter reported substantially higher segment claims losses in 2020 compared to the years before, property and casualty insurers that write cyber coverage face increasing profit pressure, especially with increasing premium rate and tighter coverage terms, which are expected to bolster a recovery in underwriting performance over the medium term.
According to Fitch, “Nonetheless, the increasing propensity of cyber incidents, particularly ransome are attacks, is likely to serve as a threat to a near-term reversal of claims cost trends.
“The year 2020 witnessed a rise in cyber insurance direct written premium (DWP) and the uptrend continued into 2021. According to Fitch’s findings, based on compiled data from cyber insurance supplemental flings in statutory financial statements, the DWP for cyber coverage in standalone and package policies, increased by over 22 per cent in 2020 to reach $2.7 billion.
“The written premiums for standalone cyber coverage rose by 29 per cent for the year, signaling a significant increase in demand for specific cyber protection, as well as insurers’ interest in reducing ambiguity in line with coverage relative to cyber risks included in package policies.
“Owing to the incidence of network intrusions and data theft incidents that have increased substantially in the past two years, the demand is driven by the need for risk management expertise and insurance protection by firms of all sizes.
“With cyber insurance reflecting a modest portion of the overall underwriting exposure to the property and casualty industry and individual insurers, a large unforeseen cyber event – such as a massive cloud intrusion or attack on infrastructure –could result in substantial individual incurred losses that could cause pressure in capital levels and individual ratings.
“In addition, limited historical claims and under-writing data pose significant challenges, especially for new insurance under-writers entering the segment. The direct loss ratio for standalone cyber rose sharply in 2020 to 73 per cent, which represents the highest level recorded in the six years that separate cyber data included in financial reporting.”