US cyber premiums soared 76% in 2021

Premiums per policy continued to rise, as did loss severity

US cyber premiums soared to $4.83bn for the 2021 calendar year, an increase of 76% from the prior-year figure of $2.74bn.

The loss ratio for the US cyber insurance industry decreased by 1 percentage points to 66% for the 2021 calendar year, as a significant rise in premium per policy kept pace with a continued rise in severity.

The massive increase in total cyber premiums was primarily driven by a 94% increase in standalone cyber products, versus a 49% increase for package cyber products, according to the data, which was released by the National Association of Insurance Commissioners (NAIC).

Earned premium per policy increased for both standalone and package policies, with increases of 25 percent for standalone and 21 percent for package on an earned basis.

The figures underline the massive demand for cyber insurance products, as well as the scale of the cyber threat facing US buyers.

Indeed, average claim size rose 24% in 2021, from $74,354 in 2020 to $91,833 in 2021, with similar increases for both standalone and package. This severity increase is lower than 2020, when average claim size rose 53%.

Frequency rose a smaller 11% year over year for all policies, and this was driven by a 14% increase in loss frequency for package policies. For standalone policies, frequency decreased very slightly, by 9%.

The US makes up around half the total cyber insurance market.

Aon has estimated that cyber insurers booked a combined ratio of 94% in 2021, including a 66% loss ratio and 28% expense ratio.

Aon also measured the cyber volatility across different lines of business, and found that cyber was among the most volatile. The coefficient of variation (CV) of insurer loss ratios, a measure of volatility, came in at 66% for cyber, higher than fidelity & surety (63%), homeowners insurance (44%), or commercial multi peril (35%). Only liability reinsurance (68%) and property reinsurance (80%) had higher volatility.

A total of 214 U.S. insurers reported direct cyber written premium to the NAIC in 2021, up from 200 in 2020. However, the majority wrote less than $1m in premium. One hundred insurers wrote more than $1m and 47 wrote more than $5m.

Overall, the market became more competitive in 2021. The top 10 cyber insurers accounted for 58% of direct written premiums, down from 68% last year. By way of comparison, the top 10 writers of other liability-claims made insurance account for 55% of premium.