Cyber Risk and Emerging Insurance Market Challenges for Enterprise Businesses

Cyber threats are notoriously unpredictable, but organizations that have improved their security standards and prepared through simulated events are more consistently managing these risks. As proactive cyber awareness becomes increasingly common, the cyber risk insurance marketplace has become more sustainable but not without challenges.

“Organizations do not need to experience a cyber incident to strengthen their security posture, but, when a meaningful loss does occur, it often accelerates positive improvements in security infrastructure to prevent another occurrence,” said Spencer Timmel, Head of Cyber Insurance at Safety National. “The world is generally better prepared to face cyber risks, and the insurance industry played an important role, supporting insureds’ path through preventative resources.”

Here, we review current market trends, challenges, and risks ahead.

Reflections on a Past Hard Market

While the marketplace is in a significantly better position today, it took the strain of a hard market to get there. During the height of the hard market, brokers faced challenges in building effective insurance programs for organizations. Claims frequency in 2021 and 2022 drove higher costs, and insurance carriers, faced with elevated losses, tightened terms and limits amid pricing pressure.

A Thriving Marketplace

With organizations now managing exposures more effectively and responding to cyber events more appropriately, market conditions in the last three years have improved for buyers. Increased competition, ample capacity, and a sufficiently large cyber insurance market have enhanced overall sustainability and could support long-term growth. The cyber risk insurance product continues to expand, with more organizations purchasing coverage that historically may not have. Global adoption is expected to continue as additional buyers enter the market.

Potential Risks Ahead

While the marketplace maintains a generally positive outlook, claims and incident activity have not followed suit. Data from the National Association of Insurance Commissioners (NAIC) shows that reported cyber insurance claims increased significantly in the most recent reporting period. This increase may be driven in part by single points of failure (SPOFs), which can result in widespread, catastrophic events. Cyber insurance markets worldwide are concerned that a single event at a company could impact hundreds or thousands of other insured companies. These catastrophic claims will adversely affect years of combined loss ratios and need to be funded through additional premiums.

For example, CDK Global, a software provider supporting more than 40 percent of U.S. car dealerships, disrupted operations at over 15,000 dealerships following a ransomware attack in June 2024. A single point of failure can therefore be responsible for a large-scale, industry-wide cyber incident. In response, the cyber insurance industry is increasingly identifying industries with heightened SPOF exposure and allocating premiums accordingly to better respond to potential losses.