As cyber attacks increase, insurers in the space face rising losses

Amid rising losses and increasing claims on cyber insurance, companies that provide insurance against online hackers are facing growing risks, says Fitch Ratings.

In a new report, the rating agency said that while cyber insurance has been a profitable line of business for several years, an increase in network intrusions, phishing, and denial of service attacks is expected to increase the volume of claims — and the average cost per claim.

In particular, Fitch reported that ransomware events have risen by 400% over the past two years.

“Continued growth in cyber intrusions and ransomware events may pressure the durability and long-term profitability of the cyber insurance market and insurers’ internal management of cyber threats,” it said.

Already, rising losses have caused cyber insurance prices to rise and policy terms to tighten this year. Policy renewal rates rose 25% in the second quarter, Fitch reported.

“Underwriting and pricing of cyber coverage are challenging due to limited historical policy and claims experience,” the rating agency said, adding, “Companies with greater market share and a longer history in cyber have an informational advantage and have fared better than smaller-sized peers.”

Despite recent weakness, negative credit rating action solely based on cyber insurance losses are unlikely, the report said, as the issues represent a small portion of large companies’ policy mix — and “material portions of the business” are passed along to reinsurers.

Looking ahead to next year, cyber insurance prices are expected to continue rising, Fitch said: “Earned premium growth from recent pricing actions will help stabilize results for 2022.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.