Cyber Insurance—A Meaningful Growth Opportunity for Insurers

DBRS Morningstar released a commentary titled Cyber Insurance—A Meaningful Growth Opportunity for Insurers.” The commentary discusses the growth of the cyber insurance market as measured by direct written premiums. The commentary also discusses the difficulty insurers face in properly evaluating and pricing cyber risk, due to factors such as the evolving nature of cybercrime and the potential for systemic, outsized losses.

The commentary highlights the following:

-- Cyber insurance provides insurers with a growth opportunity predicated on high demand, a large protection gap, and an increasingly digitized world. Insurers offering cyber insurance can benefit from a risk that is uncorrelated to severe weather events and that allows a deeper relationship with the insured.

-- As the industry matures, it is likely to lead to increased stability in underwriting profitability, given that insurers are able to manage outsized losses and systemic risk issues through disciplined underwriting and clear policy limits and exclusions.

-- Constraints to future growth include the availability and affordability of reinsurance as well as the ability to accurately value and price cyber risk given the evolving nature of cybercrime.

“Cyber insurance provides an opportunity for insurers to avail themselves of a high-growth, high-demand line of business,” says Komal Rizvi, Vice President, Insurance. “However, given the rapidly evolving and potentially catastrophic nature of the risk, risk mitigation measures, such as coverage caps and exclusions, thorough underwriting, transparent policy wording, and reinsurance, are critical to the feasibility of the product.”