Identity theft coverage could evolve into standalone personal cyber insurance

As technology proliferates further into individuals’ lives, the role of identity theft insurance as a supplemental product could evolve as personal cyber risks become more of a threat, according to a new report from global credit rating agency AM Best.

The report, titled Identity Theft Coverage Continues to Evolve, states that in its current form, identity theft insurance is offered predominantly on a packaged basis, with nearly 21 million in-force policies in 2018. Despite the low premium base, this line of business has reported profitable results on a direct basis. Standalone policies have constituted just over 1 percent of all policies in recent years but have accounted for at least 80 percent of all incurred claims over the last four years.

According to the report, the main reason for this trend is due to individuals being more aware of the risk, having had their identities stolen in the past or engaging in behaviour that makes them more vulnerable to identity theft.

More than half of standalone writers did not record a loss ratio in 2018, yet a single company drove the high standalone paid loss ratio of 153 percent for the year.

“Overall, loss severity is constrained by the relatively low limits offered in identity theft extensions,” said AM Best. “Although losses suffered by any single policyholder may be significant, identity theft insurance is not an insurance line subject to shock losses or catastrophe events other than massive data breaches. However, accurately analysing the profitability of identity theft insurance can be difficult when the costs for a policy can go beyond claims and related payments (for example, identity restoration services, credit monitoring).”

AM Best said the accelerating pace of innovation has made the personal lines market more connected than ever, as IoT devices and sensors in homes, in addition to the rising use of wireless and internet for communications and transactions, continue to proliferate rapidly.

AM Best expects the current version of the ID theft product to evolve into a personal cyber product that may cover risks such as hacking into IoT devices and personal laptops, as well as for liability coverage for emerging trends such as cyber-bullying.

“Indeed, some of the insurance policies that cater to the high-net-worth homeowners market offer personal cyber coverage, including identity theft, via endorsement for their policyholders, for incidents including fraud or theft of funds, such as unauthorized wire transfers,” said AM Best. “Other features may follow with the increase in demand and awareness.”

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