As cyber risks improve and insurers show increased appetite for these risks, capacity for this line of insurance business is also ample to meet the current demand.
According to global insurance broker Aon looking at the January 2024 renewals, the demand for cyber catastrophe reinsurance protection is at an all-time high.
Aon said, “The market’s first cyber CAT bond and talk of a US federal cyber backstop signal an exciting new phase for the market.” It noted that after a period of rapid and intense hardening in 2021, the cyber insurance market is now in ‘positive’ territory, despite an uptick return of ransomware activity in 2023.
Cyber risks are becoming better risks, according to Aon, while at the same time, an insurer’s ability to understand cyber, select risks and manage exposures is continually improving. It said that as long-term confidence in the cyber market continues to build, insurers are looking to reduce the amount of business ceded to reinsurers.
The frequency and severity of ransomware attacks, the main driver for cyber insurance claims in recent years, started to tick upwards in 2023, following a reduction in activity in 2022 as ransomware groups were affected by Russia president Vladimir Putin’s invasion of Ukraine and an increase in law enforcement.
It pointed out that while 2022 underwriting performance was profitable from improved underwriting discipline by insurers, 2023 faced relative headwinds due to an uptick in ransomware and the competitive pressures on pricing.
Aon said, “The improved underwriting discipline made by insurers in 2023 cannot be discounted since the large spike in ransomware claims experienced by the market in 2020. This activity was driven by frequency, and subsequent attritional loss across a large spectrum of policyholders. In the aggregate, it pushed loss/combined ratios to an unsustainable place.”
Finally, there is encouraging progress on a potential federal backstop for catastrophic cyber risk in the US, which would build on a similar public-private sector solution for terrorism, said Aon. M