In terms of coverage options, cyber risk is still in its infancy with a constantly evolving threat landscape. As a result, insureds may expect slight instability in the cyber risk marketplace, but the market is maturing, with hopes of more stability.
“Carriers have become more sophisticated to adapt to market fluctuations. Use of data-driven pricing models are helping insureds better identify and manage their risks, while managing pricing and limits with more accuracy,” said Spencer Timmel, National Director of Cyber & Technology Underwriting at Safety National. “However, developing this data-driven underwriting approach requires significant investment in time, money, and energy, so insureds should manage expectations, but consider the long-term benefits.”
These evolving cyber risk trends are setting the stage for what is ahead in the coming year.
1. Pricing and Terms Stability
While 2021 and 2022 saw pricing increases of 2-3 times what they were before, many insureds can expect some stability in pricing, terms, and conditions for 2023. The previous coverage restrictions were reflective of major ransomware attacks that were eroding profitability in the cyber insurance marketplace.
While some organizations may still require premium increases, many will benefit from decreases, but there is hope for less drastic fluctuations across the board. Much of this will be determined by who has invested in appropriate security measures and adapted their risk management strategies accordingly.
2. War Exclusions
The ongoing conflict between Russia and Ukraine has highlighted war exclusions included in cyber policies, focusing on aggregated risk issues. Cyber policies are global, so if a war were to break out involving several countries, the actions could have a secondary impact on private businesses around the world. The concern for cyber risk insurance carriers lies in the aggregated risk due to increased exposure. That is, one loss versus thousands of insureds being impacted.
Currently, the Lloyd’s Marketplace Association (LMA) is working on an agreement that defines a cyber war versus a traditional war, and how carriers should exclude those exposures for the market’s long-term stability. Major reinsurers are also assessing the definitions of state-sponsored threats that include groups in other countries paid to infiltrate the U.S.
3. Ransomware Reduction
Small- and medium-sized businesses have seen a reduction in catastrophically large ransomware attacks now that there have been further investments in information technology (IT) security supported by larger organizations. Better protection of their IT has also helped them defend against ransomware and is equally important to recovering more quickly.