According to the World Economic Forum, widespread cybercrime and cyber insecurity are among the top global risk concerns over the next 2 and 10 years, surpassing risks like “Natural resource crises” and “Large-scale environmental damage incidents.”
Cyber liability is a top-priority discussion with your client’s risk profile – but the past few years have felt erratic for agents between premium hikes and new application questions.
As some carriers lower premiums and remove underwriting questions, how do we make sense of cyber insurance today for our clients? What lessons can we learn, and how can we be better prepared for a world where cybercrime is a global and local concern?
Two Phases of the Hardening Cyber Market
1) Rapid Market Expansion with Minimal Underwriting
Carriers collected limited dated data that did not validate their applicants’ true risk. They weren’t capturing the deployment of important risk-mitigating security controls. Premiums and barriers to entry were low, and market grabs were an easy route.
2) Rapid Premium Increases with Coverage & Capacity Restraints
Since carriers were not collecting enough premiums for their risks, their cyber programs were set up for failure. As their loss ratios skyrocketed, these carriers backed out of the cyber insurance market. Those who remained pulled back coverages or added on added-on exclusions.
Cyber premiums are still going up because carriers, in a way, are trying to understand where these premiums should have been all along. But these premiums are leveling off as carriers understand what certain security controls are actually doing to reduce risk.
Cyber premiums are still going up because carriers, in a way, are trying to understand where these premiums should have been all along.
Are We Returning to a Soft Insurance Market?
From carriers underestimating the risks, we entered an extremely hard market and are now seeing losses come down. But those decrease in losses directly impact newly added security controls such as MFA, data backup sets and procedures, and the like.
If the cyber insurance market were a pendulum, we’d see its swing hit the peaks of both the soft and the hard markets. Both extremes came from a brand-new line of coverage hitting the insurance market where the cyber risks were greater and more quickly evolving than what you would expect in a typical commercial property and casualty line of coverage like Fire or Worker’s Compensation.
The pendulum of the cyber insurance market will continue swinging, but will we see either extreme at the same level? Not likely.
Offering Cyber Insurance with Steady Footing
For agents to stay on top of cyber insurance and have effective conversations with their clients, understanding the process of obtaining it is the top priority, just as much as understanding the product itself.
Agents do this in two ways:
1) Find a knowledgeable cyber insurance partner, or
2) Take on the role of experts themselves.
The latter is a tall ask — the language, threats, and procedures around cyber insurance are constantly evolving to adapt as cybercriminals find new ways of creatively exploiting the digital landscape. With the soft market, carriers had their own attitude, experience, history, and future vision. The key is paying attention to whether carriers are acting more or less conservatively regarding their risk philosophy through premiums and underwriting. If you start seeing premiums go down and certain questions being pulled back, that’s not necessarily bad. But you also want to make sure you’re aligning yourself with stability.
Now is when you want to align yourself with carriers where lessons have been learned. They understand the table stakes and don’t feel the need to make drastic swings because those drastic swings will affect you and your client’s experience. So, ensure you’re working with someone who understands the cyber carrier market trends and which carriers are taking a more volatile approach.
Make sure you’re not aligning yourself with one carrier or one approach to the cyber market. FifthWall Solutions serves as a one-to-many — not just for insurance products but insights on how carriers approach risk and what that could mean for your client in the short and long term.
If you start seeing premiums go down and certain questions being pulled back, that’s not necessarily bad. But you also want to make sure you’re aligning yourself with stability.
Many carriers are still digging themselves out of a hole. Some learned lessons earlier than others. Talk with a cyber insurance partner who understands the difference between the two.
