CyberGuide - Information Security and Cyber Risk Management

Cyber direct written premiums rose significantly to $4.1B in 2020

By Erin Ayers, Advisen

The U.S. cyber insurance market expanded to $4.1 billion in direct written premium in 2020, an increase of 29.1% over the previous year, according to the National Association of Insurance Commissioners (NAIC).

“Premiums grew substantially in 2020 as cyberthreats, particularly those having to do with ransomware, continue to rise,” the association said in its report. Direct written premiums for standalone policies grew significantly in 2020, up to $2.58 billion compared to $1.48 billion for package policies.

NAIC used data from 141 insurer groups for this year’s report, including both U.S. domiciled insurers and “alien” nonadmitted markets. The line remains a small part of the overall U.S. property-casualty insurance market, according to the report, with cyber direct written premiums representing just 0.38% of the $727 billion total DWP.

However, the market is growing: In 2020, policies in force written by U.S domiciled insurers grew 21% to just over four million. And although the average policy cost rose less than 1% in 2020, prices have risen markedly since last year and will be reflected in the NAIC’s 2022 report. Since 2016, direct written premiums for the U.S. cyber market increased from $2.4 billion to $4.1 billion in 2020.

“It should be no surprise that cyber insurance premiums are on the rise,” said NAIC in its report, citing industry reports with rate hikes ranging from 15% to 50% beginning in the fourth quarter of 2020. “However, even as prices rise, demand has grown for cyber insurance in the second quarter of 2021.”

NAIC observed a range in loss ratios among the top 20 cyber insurers of 24.2% to 114.1% for an average of 66.9%, up from 44.6% in 2019. Wide variations in loss ratio aren’t unexpected, according to the report.

“It is important to note that the cybersecurity insurance market is still developing,” commented NAIC in its report. “Therefore, an element of catastrophe exposure continues to exist. The cyber market continues to be a developing market; as a result, the wide range of loss ratios is not unanticipated.”

The top 10 writers of standalone and package policies insured 68% of the market in 2020, with the top five – Chubb, AXA, AIG, Travelers, and Beazley writing nearly 50%.

Regulators may consider enhancements to the annual NAIC cyber supplement for future reports, according to the association.

“State insurance regulators recognize cybersecurity as one of the most important topics for the insurance sector and businesses today,” said David Altmaier, NAIC president and Florida’s insurance commissioner. “The NAIC is committed to developing new ways to monitor this evolving market to better address cyber risk.”

Editor Erin Ayers can be reached at [email protected]