Surplus lines insurers are now the dominant players in cyber
From 2015-2020 the surplus line sector held a relatively steady 25% market share. It is now over 60%.
As cyber insurance pushes toward a potential end to its hard market, surplus line insurers are emerging with a considerable portion of the marketplace. They now account for more than 60% of direct cyber premiums written in the sector, according to AM Best.
This is quite the reversal from prior results, as AM Best reported that from 2015-2020 the surplus line sector held a relatively steady 25% market share.
The surplus lines sector saw direct written premiums increase more than 500% during 2020 and 2021, a period that saw rates move from a 4.4% increase in Q1 2020 to a more than 30% average rate change in Q4 2021.
Throughout the hard market, surplus line insurers grabbed nearly all the growth in cyber and saw a better loss ratio than admitted carriers, according to AM Best.
While the non-admitted market accounted for most of the growth during a period of explosive demand for cyber coverage, the admitted cyber market still saw direct premiums written increase, albeit at a “slower” rate of more than 50%, AM Best reported.
With freedom of rate and form in tow, the specialty market is particularly well situated for cyber insurance as these carriers can customize policies to address the unique exposures of individual clients. AM Best reported this flexibility includes specific coverage grants and sub-limits based on the policyholder’s risk profile. Insureds flocked to specialty carriers in search of those tailored coverages.
However, AM Best did note that surplus line policy premiums are typically multiple times that of an admitted insurer for both standalone and packaged policies.
Cyber rates are moderating
During the opening quarter of 2023, cyber insurance rates increased 8.4% compared with 15% average increases seen in the final quarter of 2022, according to AM Best, which noted the effects of price moderation are yet to be seen.
According to Marsh, increased competition in the sector, better cybersecurity measures and a drop in ransomware attacks in 2022 each have a role to play in the current rate environment.
“Underwriters have used every item in the proverbial toolbox to manage exposures. In addition to the rate increases, underwriters have cut limits, increased insureds’ own retention and improved risk selection,” said Christopher Graham, senior industry analyst, industry research and analytics, AM Best. “With the cyber universe expanding and becoming more complex with artificial intelligence creating new exposures and ransomware attacks returning to prominence in 2023, the demand for cyber coverage will only increase.”
Marsh reported carriers are keeping a sharp eye on cybersecurity controls and the level of protection is having a “direct and significant” impact on the coverage offered. Multifactor authentication, privileged access management, endpoint detection, and response and patch management programs are key security features carriers are keen on.
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