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In our increasingly digital world, the demand for cyber insurance continues to outpace supply, and many experts point to the lack of sufficient actuarial data as the main challenge for underwriting cyber risk.
According to a recent Fitch Ratings report, cyber insurance premium volume grew to $1.35 billion in 2016, an increase of 35 percent over 2015
“Take-up rates for cyber insurance are increasing with frequent reports of computer hacking incidents, including: network intrusions and data theft, as well as high-profile ransomware attacks that are leading corporations to search for broader insurance protection against cyber threats,” said Jim Auden, Managing Director, Fitch Ratings.
The analysts noted in their report that while traditional insurance risks and loss expectations such as catastrophe and natural disasters are fairly well modeled and understood, modeling and available data for cyber risk remains in its infancy. A lack of past precedents creates numerous questions regarding claims and coverage. This newness of cyber risk creates challenges for insurers in establishing policy terms and pricing risk.
“Determining loss exposures from a cyber catastrophe is difficult as it requires an assessment of events that are feared, but not yet experienced in reality,” Auden said.
The National Association of Insurance Commissioners (NAIC) agrees: “Cyber risk remains difficult for insurance underwriters to quantify due in large part to a lack of actuarial data. Insurers compensate by relying on qualitative assessments of an applicant’s risk management procedures and risk culture. As a result, policies for cyber risk are more customized than other risk insurers taken on, and, therefore, more costly.”
Despite the growing demand, Fitch urges insurers to take a cautious approach to underwriting for cyber risk. “The evolving nature of events and uncertainty regarding the source and range of potential losses add further challenges,” the analysts noted.
The Fitch report is “Cyber Insurance Market Share and Performance.”