Global cyber insurance has drivers for growth, amid major risks: AM Best
The global cyber insurance market should expand steadily, with demand driven by rising take-up rates and underwriting improving to counter a rising risk array, analysts at AM Best said in a segment report setting the segment outlook to ‘stable.’
Expect “favourable intermediate-term growth prospects as take-up rates steadily improve,” analysts said of the elements warranting the stable outlook.
Demand for cyber coverage is expected to increase and “remain strong” over the medium term for companies and small-to-medium sized SMEs, in particular, as “they refine their risk appetites and tolerance”, AM Best said.
Increased cyber security hygiene, due to “a greater awareness of potential cyber incidents” has led to improved defences against attacks, with quicker response times limiting losses, analysts said.
Improvement in underwriting standards enabled reinsurers to provide more efficient and cost-effective coverage, analysts indicated, while policy language and wording lowered defence and ligation costs.
Reinsurance market capacity “seems to be sufficient” to support the growth, with long-term capacity contingent on cyber insurers maintaining profitability in the long term.
Insurance-linked securities (ILS) “remains nascent” as a complement to reinsurance and “will need to grow” to viably support the capital needs or insurers as well as reinsurers, AM Best noted.
As ever, counterbalancing dangers lurk. AM Best warns on rising competition among carriers, albeit not always from fully-qualified entrants, just as AI adds new risks and risk aggregation remains a large unknown. Also eye model divergence, dependence on reinsurance, geopolitical tensions and cyber-attack frequency.
As more insurance companies write cyber, AM Best warns that “not all have the maturity and sophistication to do so”, analysts said of the potential looming drawbacks.
While artificial intelligence will benefit the industry, it will also make way for criminals to “spread malware, deploy scams, use stolen data and create harm in new ways”.
“These could certainly be detrimental to organisations without insurance; they can also impact insurers’ profitability.”
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