After several years of exponential growth in the cybersecurity insurance market, a surprising shift occurred last year in cyber liability insurance premiums, according to a report from Fitch. “U.S. statutory direct written premiums for cyber coverage in standalone and package policies declined for the first time on record in 2023 by a modest 2%. This represents a sharp drop off from market growth of approximately 200% from YE20 to YE22. The reversal occurred even with continued growth in demand for coverage and carriers keen on expanding their cyber underwriting portfolios despite weaker pricing trends,” reports Fitch, the credit ratings company, in this report.
To be sure, “statutory direct written premiums” do not capture all premium-related activity, but Fitch also reports stand-alone cyber liability insurance declined in 2023, as did policy renewal rates.
On the upside, profitability remains strong, with the direct incurred losses and DCC (Defense and Cost Containment) ratio essentially unchanged last year at 44%. Given the increase in premiums leading up to 2023, and continued improvement in underwriting and required security standards, cyber insurance providers are making money.
Clouds on the horizon
But Fitch sees clouds on the horizon. Aside from catastrophic risks, the company warns that increasing regulations may increase the price of hacks. While optimists might predict the regulations will improve over-all cyber security, reducing the growth rate of losses, Fitch seems more pessimistic: “Cyber loss risk is also heightened by expansion of regulatory and compliance requirements, including recent SEC cyber risk management disclosures for public companies, that increase potential for litigation risks and substantial fines and penalties for not properly disclosing data breaches.”
Fitch’s outlook suggests that the combination of heightened regulatory pressures and potential litigation risks could significantly complicate the cyber insurance landscape. The firm anticipates that these factors may increase the cost of coverage and affect the overall stability and growth of the cyber insurance market.
Source: U.S. Cyber Insurance Maintains Strong Profits; Premium Growth Slows.