When even brokers are saying pricing is likely to go up, it seems safe to assume that the odds of it happening are good.
In a report issued at the start of January, Howden said that cyber insurance is at "a decisive moment in its growth journey”, with more capacity entering the market from traditional carriers and insurtechs, while underwriting performance remains strong despite the uptick in cyber activity.
The broker suggested that price adequacy is “front and centre for 2024”.
“With new and existing carriers striving to hit their (ambitious) growth targets, rate decreases were recorded for the first time in five years in 2023,” the report said.
Howden’s Global Cyber Insurance Pricing Index shows pricing levels decreased through much of 2023 following accelerated year-on-year reductions before stabilising towards year-end.
“The buyer-friendly environment is likely to persist into 2024 with single-digit or low double-digit decreases in premium, although upward adjustments may be necessary should the elevated threat environment translate into higher claims activity,” the report said.
“A correction is likely”
Risk Placement Services (RPS) suggested in a report released in February that an upwards correction in cyber pricing is likely in the not-too-distant future.
The Arthur J Gallagher wholesale subsidiary highlighted the cyber market’s rapid growth in recent years, and noted that the cycle between hard and soft markets during that time has been quick and volatile.
RPS said these swings have been much more compressed than the slowly-evolving cycles in other insurance lines.
The broker said that the market turned down as it moved into 2023 because markets thought they were “out of the woods” following a drop in ransomware events.
“Insurers started taking rates back down with less than a year of favourable claims data,” said RPS national cyber practice leader Steve Robinson in the report.
“A lot of that was newer players that were accustomed to huge revenue from rocketing rates and higher policy take-up.”
He added: “Investors that had backed some newer players in 2019 to 2022 were asking why their investments were not growing as fast anymore, and markets responded by reducing rates to capture market share – but that was counter to everything the market knew over the last three years.”
In addition to rates coming down, insurers have expanded their appetite and increased limits to offer more appealing coverages to insureds. Insurers are more willing to offer $10mn limits where they previously offered a maximum of $5mn.
“We’re not quite at the point where insurers are offering terms like they did pre-2020, but there are carriers who are getting a lot more aggressive in offering higher limits and being a lot more relaxed in the types of controls they are asking for from their insureds,” said RPS area senior vice president Nick Carozza.
RPS said that several insurers have also reduced their multi-factor authentication and endpoint detection and response requirements, even across higher-revenue bands.
But the broker predicted that the buyers’ market seen in 2023 will not last as claims are rising again. It suggested that the market has not hardened yet in part because of the increased competition from new entrants.
“We’re at a period where a correction is likely,” said RPS area assistant vice president Kunal Mallik.
“So far that’s been offset by the amount of new entrants coming into the marketplace providing additional capacity, and that increased competition has stalled some existing insurers from readjusting their pricing.
“But that’s likely only sustainable for the next quarter or two, and when those pricing adjustments do hit, while they might not mirror the drastic increases we saw a couple of years ago, they could be substantial for some.”
He added: “The current pricing model just isn’t sustainable at all – a market correction on pricing is overdue.”
RPS suggested that even the newer entrants will have to push up pricing once it becomes apparent how unprofitable lowering prices to attain market share is.
The wholesaler’s feedback on a likely turnaround in pricing followed some retail brokers also recently suggesting that price decreases will soon level off due to the increased risk cyber insurers are facing.
US cyber rates now in line with 2021
In a cyber report released by Woodruff Sawyer in January, Dan Burke, senior vice president and national cyber practice leader at the retail broker, highlighted a dramatic shift in the US cyber market from 2022 to 2023.
Many of Woodruff Sawyer’s cyber insurance clients saw decreases in the cost of their insurance throughout 2023. This was the case for 58 percent of clients in the first half of the year and 65 percent in the second half.
“Despite many of our clients seeing total cost decreases, the cyber pricing environment remains elevated from pre-pandemic levels,” Burke said. “The good news is that the hard market peaked in the first half of 2022. However, the rate decreases seen throughout 2023 have only brought rates in line with 2021 as opposed to the lower rates of 2018–2020.”
Identifying the key themes that emerged during 2023, Burke cited war exclusions, the return of ransomware, coverage restrictions for systemic risk and privacy violations, and client cybersecurity maturity bringing more suitors.
“Insurance carriers have pointed to statistics on ransomware activity reverting to 2019 levels to argue current pricing is unsustainable – but the median pricing level remains nearly three times higher than in 2019,” he said. “This suggests that while rates may level off soon, carriers should not react as dramatically to the increase in ransomware activity.”
Burke noted that carriers have more premium on the books to negate this rise in claims costs and a dramatic increase in rates like we saw in 2021 and 2022.
81% of underwriters believe premiums will increase in ’24
Woodruff Sawyer surveyed cyber underwriters to gauge market sentiment, with the results also suggesting that rate decreases are likely to end.
Most underwriters – 81 percent – think premiums will increase slightly, with 19 percent suggesting they will stay the same. In the previous year’s survey, 59 percent had said premiums would increase slightly, 12 percent said they would stay the same and 29 percent said they would decrease slightly.
All underwriters in the annual survey suggested cyber risk will increase in 2024. More than half of underwriters (56 percent) believed it will “increase greatly”, a higher percentage than last year, while 44 percent believed it will “increase slightly”.
When asked to provide the three biggest threats, 94 percent of underwriters cited ransomware attacks, 75 percent mentioned supply-chain attacks and 69 percent mentioned privacy violations.
The consensus among carriers that pricing should go up in 2024 is also reflected in sister title The Insurer’s reporting. For example, in an interview with the publication, Resilience president Mario Vitale noted that threat activity was higher in 2023 than in the previous year.
“The growth of the product line will depend, like any product line, on the number of threats and losses. It’s been an active year. If the threats continue to come in the way they are coming in, I’m predicting you’re going to see a pause in rate decreases and even rate increases depending on how severe this becomes,” Vitale said.
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