Amrae: Cyber remains a volatile class of insurance

After experiencing heavy losses on the cyber risk market in 2020, insurance carriers responded by tightening all their underwriting conditions: in the case of large companies, for instance, premiums doubled, capacity shrank, and high deductibles were introduced. This constituted a very distinct reduction in insurance coverage.

The adjustment was profitable for the insurance industry: the large-company market segment delivered high surpluses. But the conditions also drove businesses away, as 4.4% of previously insured companies decided to find other solutions for covering cyber risk.

This is according to Amrae’s latest Light Upon Cyber Insurance (LUCY) report, which found that claims frequency and severity has greatly diminished for large companies.

After a year of losses in 2020, profitability has returned to the cyber insurance market, with a claims ratio of 88% for all companies size. This - however - came at the cost of increased premiums and tightened underwriting conditions, which may prove to be deterrent for companies.

Capacity constraints remain 

Renewal negotiations for cyber insurance were tense in 2021 because companies lacked arguments with which to counter the brutal tightening of conditions offered by carriers. But this should not happen again this year, thought study-leader Philippe Cotelle.

“Risk managers now have a global, in-depth vision of cyber risk,” he said. “Policy costs and conditions, claims frequency and severity, technical results… That should set the negotiations on a more equal footing and anchor them in objective facts.” 

Over the past year, large companies alone paid nearly €46m more in premiums than they had in 2020, pushing the sum total of their premiums to more than €151.8m (+43%). This accounts for 82% of all premium volume for all French companies that bought cyber insurance through a broker.

Large companies might therefore have expected to have access to higher limits, but this was not the case. Capacity shrunk close to 24% for large companies, while premium rates nearly doubled (by an average hike of 96.9%). For the market as a whole, premium volume increased by 48.78% in 2021, while capacity shrank 21.47%.

“These figures reflect how hard the renewals were at the end of 2021,” says Philipe Cotelle. “Risk managers could tell the market was getting tense. Our study confirms it.”