Cyber premiums fell in 2023 but demand for bundled policies remains high: Fitch
Despite robust profitability in the cyber insurance sector, U.S. property/casualty insurers experienced a slight decline in direct cyber written premiums in 2023, according to a new report by Fitch Ratings. This decrease marks the first dip since cyber-specific premium data were incorporated into statutory financial statements.
Strong demand amid evolving risks
The appetite for cyber insurance remains high as organizations increasingly seek protection against a landscape of evolving digital threats. However, the U.S. market saw direct cyber written premiums fall by 1% last year. This modest decline is notable following the explosive growth of 160% in premium volume from 2020 to 2022.
Divergent trends in standalone and package policies
The Fitch Ratings report highlights contrasting trends within the cyber insurance market. Standalone cyber policy premiums dropped by 3% in 2023, whereas premiums for package policies, which bundle cyber coverage with other insurance products, rose by 5%. This divergence suggests a shift in how businesses approach their cyber risk management strategies, possibly seeking more integrated solutions.
Profitability and market dynamics
Despite the dip in premiums, the cyber insurance segment continued to generate significant underwriting profits for the second consecutive year. The industry's direct loss plus defense and cost containment ratio for standalone cyber insurance saw a marginal increase to 44% in 2023 from 43% in the previous year, indicating sustained profitability.
Jim Auden, managing director at Fitch, noted, “Expansion in demand for cyber protection and P/C insurers’ expertise in risk mitigation and claims management has promoted strong growth in cyber insurance. However, market concentration has become diluted as more insurers enter the cyber market attracted by longer-term growth opportunities.”
Pricing pressures and underwriting challenges
Market conditions are exerting pressure on pricing. According to global insurance broker Marsh, U.S. cyber renewal premium rates decreased by 6% in the latest quarter. This trend of declining prices could lead to weaker underwriting performance in the future, challenging insurers to maintain profitability.
“Underwriters' risk management practices continue to improve,” said Gerry Glombicki, Senior Director at Fitch Ratings. “But large incidences of data breaches, business email compromises, and ransomware attacks continue to present a long-term threat. Cyber loss risk is also affected by expansion in regulatory and compliance requirements that increase the potential for litigation risks and substantial fines and penalties for not properly disclosing data breaches.”
As the cyber insurance market matures, insurers will need to navigate the balance between maintaining profitability and responding to competitive pricing pressures. Enhanced risk management practices and innovative policy structures could play a pivotal role in sustaining growth and stability in this critical sector. The evolving risk environment, coupled with regulatory complexities, underscores the need for ongoing vigilance and adaptation by insurers.
While the cyber insurance market faces some pricing challenges, the continued demand for cyber coverage and insurers’ expertise in managing cyber risks position the industry for long-term growth. The future will likely see further innovation and strategic adjustments as insurers seek to meet the dynamic needs of their clients while managing profitability in a competitive landscape.
