The drive towards greater use of technology during the COVID pandemic will see a significant growth in the cyber insurance market.
S&P Global Ratings has issued a new report which predicts the cyber insurance market is set to grow rapidly over the next decade as the COVID-19 pandemic encourages organisations to speed up their digital transformation, which will inevitably increase systemic vulnerabilities to cyber-attacks.
“Although the yearly economic costs of cyber-crime already exceed $700 billion, insured cyber losses are still very small at below $5 billion,” said S&P Global Ratings credit analyst Manuel Adam. “This indicates the untapped potential of the cyber insurance market.”
S&P said it expects the cyber insurance market to increase 20%-30% per year on average in the near future, with a key avenue for growth being small and midsize enterprises, which have a considerable untapped demand for cyber insurance coverage. In the U.S., cyber insurance growth rates for SMEs were more than double those for other industry segments in 2018 and 2019.
“We believe these digitalization trends are here to stay and will inevitably lead to a higher likelihood of cyber incidents, as companies increase their digital footprint or enter the space for the first time,” stated the report. “Even prior to the COVID-19 pandemic, cyber risk was the top peril for organizations globally, according to the Allianz Risk Barometer Survey in January 2020. The same survey ranked it 15th back in 2013.”
Cyber risk underwriting poses various challenges to insurers added S&P. The accumulation of claims within a cyber insurance portfolio, given cyber-attacks can spread rapidly across the globe in a few seconds, can expose insurers to high financial losses. Furthermore, calculating an appropriate price for cyber insurance is more difficult than other lines of business given that the very dynamic nature of cyber risks and increasing sophistication of cyber-crime.
As the market gains critical mass, providers should continue to build out their platforms and product offerings and focus on robust underwriting skills, the report says.
“Insurers will have to offer more relevant products for the market to succeed, and carefully evaluate and monitor exposures, in particular related to potential accumulation risks, to maintain credit strength if they accept cyber insurance risks on a larger scale,” said Mr. Adam.
The report stated: “In most developed global markets, cyber insurance will become one of the key growth areas for insurers in the next decade, partly because many larger lines of business, such as motor and property, are highly saturated. However, market penetration has remained relatively low, despite the area being among the largest risks for organizations globally.
“The estimated yearly economic costs of cyber-crime already exceed $700 billion, but insured cyber losses are still very small at below $5 billion. In comparison, total economic losses from natural and man-made disasters in 2019 totalled about $140 billion, with $56 billion insured, according to Swiss Re.
“This indicates the untapped potential of the cyber insurance market. Currently, commercial and private cyber insurance premiums total about $5 billion, and we expect this to increase 20%-30% per year on average in the near future.”