Navigating the Cyber Risk Landscape: A New Era for Insurance

The Grim Prospects for the U.S. Cyber Insurance Market

The cyber risk environment has deteriorated significantly, prompting A.M. Best to describe the prospects for the U.S. cyber insurance market as 'grim'. The recent surge in ransomware attacks, leading to business interruptions and other hazards, has transformed cyber insurance from a secondary line to a primary component of corporate risk management and insurance purchasing decisions.

The Rising Demand and Costs of Cyber Insurance

According to a Government Accountability Office (GAO) report, cyber insurance 'take-up' rates have increased to 47% in 2020 from 26% in 2016. This heightened demand has been accompanied by higher prices and reduced coverage limits for sectors like healthcare and education. A survey of insurance brokers revealed that over half of their clients saw prices rise by 10 to 30% in late 2020. Sridhar Manyem, director of industry research and analytics at A.M. Best, noted that while rate increases for cyber insurance outpaced the broader property/casualty industry, the increase in cyber losses outstripped these hikes, suggesting more trouble for 2021.

The Evolving Threat Landscape and the Need for Resilience

Federal Reserve Chairman Jerome Powell identified cyberattacks as the foremost risk to the global financial system, even surpassing the lending and liquidity risks that led to the 2008 financial crisis. Recent high-profile attacks on the Colonial Pipeline, JBS SA, and the New York City Metropolitan Transportation Authority underscore these concerns. FBI Director Christopher Wray compared the current spate of cyberattacks to the challenge posed by the 9/11 terrorist attacks, highlighting the agency's investigation into about 100 different types of ransomware, many traced back to Russian hackers. As the world enters a phase where traditional risk transfer through insurance products is no longer sufficient, a focus on resilience and pre-emptive mitigation is essential. Insurers are well-positioned to serve not only as financial first responders but as partners in managing these evolving hazards.