Sharp rise in cyber rates could choke off volume growth near-term, JP Morgan warns
An extreme run-up in cyber insurance rates can do little but stymie volume growth in the near-term, with only major inroads for IT security capable of bringing broad-based volume gains back to the market, analysts at JP Morgan suggested in recent research.
“In our view, higher prices will slow exposure growth …. with clients less willing to pay more for skimpier coverage and insurers only interested in providing coverage to the highest quality accounts,” analysts wrote in a sector analysis.
A stiff run-up in claims (think: 2019 data breaches and 2020 ransomware) may have boosted client demand, but it left insurers feeling a bit insecure and ready to cut back on capacity. The upshot went to prices, up 7 percent in 2020 and 24 percent through the first nine months of 2021, analysts note of market developments.
The industry-wide loss ratio jumped to an eye-opening 67 percent in 2020 from a neighbourhood 40 percent run rate 2015-19 with 15 of the top 20 cyber insurers representing over 80 percent of the market suffering the increase. The averages hide wild volatility, with any number of firms from the leader board doubling or halving their loss ratio 2019 to 2020. Among the few clear trends, mid-sized commercial beats higher risk large accounts.
Insurers responded with higher rates, lower limits, tightened terms and conditions and a general avoidance of sectors rich in data but poor on IT security. Healthcare, education and public-sector entities were likely shown the door first, JP Morgan claimed.
Reinsurers, which have taken up ca 40 percent of the infant business as it has grown to date, might not be leaned on for a rescue today, analysts at JP Morgan believe.
“We do not expect reinsurance to provide a reprieve against the backdrop of tightening market conditions,” analysts wrote. Reinsurers are showing “limited appetite for cyber risk” with few willing to extend coverage and many raising their own prices well in excess of primary carrier rate moves, analysts claim. “We do not see any offsetting impact from reinsurance on rising cyber insurance prices in the primary market.”
For the market to grow past the current shock, insurers will have to see industry-wide signs that risks are manageable at the client-level, JP Morgan suggested.
“Longer term, however, we see a number of secular drivers driving more volume-oriented growth,” analysts wrote, citing an increase in the number of businesses forced to integrate IT into operations, growing risk awareness, regulator concerns over data privacy and greater concern over “cyber hygiene” throughout industry, analysts claimed.
Expect the US cyber insurance market to reach $18 billion by 2030 or 4 percent of the total commercial sector, up from $4 billion or ca 1 percent in 2020, JP Morgan says to put itself in line with what they admit is a growing market consensus.
That increased cyber awareness will be the lynchpin in making cyber more insurable to bolster the supply-side of the question, JP Morgan noted.
“We believe that increasing ‘cyber hygiene’ is the most critical in developing the cyber insurance market as broader compliance would effectively make cyber risk more insurable from an underwriter standpoint in terms of both insurability and claims mitigation.”
Amongst leading players in its coverage universe, JP Morgan likes Chubb for a "slightly better" than average loss experience and for being well positioned to grow across geographies and segments. JPM likes Travelers for a similar loss profile and its US growth reach. Hartford is called out for superior loss ratios, tied to a cyber line packaged in broader property policies for small business clients, JPM said.
Equity investors might prefer to play cyber insurance growth via brokers who get the business growth without exposure to the claims trends, JPM hinted.
Already registered?
Login to your account
If you don't have a login or your access has expired, you will need to purchase a subscription to gain access to this article, including all our online content.
For more information on individual annual subscriptions for full paid access and corporate subscription options please contact us.
To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.
For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk
Editor's picks
Editor's picks
More articles
Copyright © intelligentinsurer.com 2024 | Headless Content Management with Blaze