How the U.S. Cyber Insurance Market Is Performing: Aon Report

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The number of U.S. insurers providing cyber insurance continues to grow along with instances of cyber attacks.

In 2017, 170 U.S. insurers reported writing cyber insurance, up from 140 in 2016 and 119 in 2015, according to Aon’s latest U.S. Cyber Market Update report.
While the new entrants have had some effect, the market remains concentrated. Of the 170, the top five cyber insurers wrote 51 percent of direct written premiums in 2017, down from 52 percent the previous year. For the same period, the top 10 insurers accounted for 69 percent of the direct written premiums compared to 73 percent in 2016.

Cyber is still profitable despite rising ransomware cases and major cyber events like WannaCry, NotPetya and Equifax. According to the report, industry loss ratios dipped from 47.6 to 32.4 in 2017, primarily because of a reduction in claims severity. The average 2017 claim size across all companies was $56,688, down from $90,865 in 2016. For standalone cyber policies, the loss ratio in 2017 was 35.4; for package policies, it was 28.8.

The report notes that small companies are becoming a bigger part of the overall cyber market and insurers targeting small-medium enterprises (SME) tend to have better loss ratio than the market overall. “As this segment grows, it may be bringing down severity and loss ratios overall,” the authors write.

For 2017, Aon estimates the combined ratio for all of cyber was 61.4. For standalone it was 62.5 and for package policies, 60.3.

U.S. cyber premiums hit $1.84 billion in 2017, a 37 percent increase compared to the previous year. Aon attributes the jump to growth in the package business, which experienced a 98 percent increase in year-over-year premiums. Standalone cyber premiums grew eight percent.

A number of insurers reported decreases in standalone premiums offset by increases in package business. Aon said it is unclear whether this reflects more bundling of technology E&O and cyber risk together or simply a reclassification of policies previously reported as standalone.

Of the 170 cyber insurers, 91 wrote under $1 million in business, while four wrote more than $100 million.

The report is based on carrier-reported data from the National Association of Insurance Commissioners (NAIC) on four types of coverage: standalone cyber policies, cyber that is part of a package policy, standalone identity theft coverage and identity theft coverage that is part of a package policy. The data does not include U.S. cyber premiums written by London and Bermuda insurers or all global cyber premiums written by U.S. insurers.

Also, Aon notes that it can be difficult to break out premiums for the cyber portion of package policies. About 14 percent of the total package cyber premiums reported to the NAIC are estimates by insurers.

Jon Laux, head of Cyber Analytics for Aon’s Reinsurance Solutions business, said that the trends are significant, even though cyber insurance is still a relatively new product on the marketplace.

“Our study reveals that despite several significant and prolific cyber attacks in 2017, industry premium continued to increase and loss ratios continued to decrease,” Laux said in prepared remarks.

Laux said the figures show “insurers have the expertise to offer an appropriate product with first- and third-party coverages that firms are willing to buy.” He added that underwriters in the cyber space are “structuring and pricing policies in a way that allows them to generate profit.”

Laux said that cyber insurers should remain committed to the surging business, a coverage he called “much-needed.”
Here are other findings of Aon’s report:

In 2017, 30 new cyber market participants received a premium of $ 140,000 each.
Cybercriminals tend to prefer ransom software these days.
The individual insurers in the space revealed that the loss rates were both higher and lower than the average of 32.4.
Insurers with at least $ 5 million in direct written premiums saw losses from zero to 223.
In 2017 cyber coverage, claims for first-party coverage constituted two-thirds of all claims, and third-party claims were met. For independent policies, first-party claims accounted for 59 percent of the total, and the package policy accounted for 72 percent of the total.
Aon’s full report is called “2017 US Cyber Insurance Profits and Performance.”

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