US cyber market loss ratio rises to 49% in 2024: Aon

By Erin Ayers, Front Page News

The U.S. cyber insurance market’s loss ratio deteriorated by seven percentage points in 2024 as claims frequency increased and premiums dropped, but remains below the highs of 2020-2021, according to Aon’s annual U.S. Cyber Market Update.

In 2024, the U.S. market produced a 49% loss ratio, up from 42% in 2023, the broker reported, drawing from data reported by insurers to the National Association of Insurance Commissioners (NAIC). Insured claim frequency rose 33%, while average severity dropped 26% to just over $69,000 last year – down from a high of $104,524 in 2022.

“Widespread events such as CrowdStrike, Change Healthcare and CDK struck the market, highlighting the potential materiality of catastrophe events and the importance of reinsurance,” said Aon in its report. “Furthermore, ransomware frequency continues to rise amongst a softening rate environment. Despite these challenges, the U.S. industry loss ratio allows for 51 points of margin for other expenses to remain profitable, demonstrating the resilience of the U.S. cyber market.”

The broker added the 2024 premium level reflects both last year and 2023, with earned premium declining 10% to $6.6 billion in 2024.

“Overall, the loss ratios in 2024 are still feeling the effects of the softening rate environment from 2023; however, the 2024 data provides cautious optimism that the soft rate environment is easing,” noted Aon.

According to the report, the industry’s paid-to-incurred ratio rose for the first time since 2020.

The broker explained, “Prior to this year, the rise in incurred losses relative to paid was evidence that cyber reserves have been increasing and the tail of cyber could be lengthening. Although 2024 does not align with the historical pattern, external factors may explain the surge in payments, such as widespread cyber event activity and paying down reserves built up in past years.”

Additionally, third-party claims increased as a percentage of total reported claims, rising to 25% from 23% in 2023. Aon noted that this could put pressure on payment patterns and cyber reporting, since third-party claims take longer to develop.

“Despite the surge in payments and slowdown in reserve increases in 2024, the continued increase in third party claims is worth monitoring. This, combined with the U.S. litigation environment and the well understood development pattern of E&O claims, indicate that cyber could be less short-tailed than generally assumed,” the broker commented.

NAIC data also showed an uptick in the number of claims closed without payment in 2024, up to 74% of the total claims closed. Aon suggested that the number of widespread cyber events in 2024 reportedly resulted in an “influx” of claims notices, but either were ultimately not truly losses or were below policy retentions.

Premiums and policies

U.S. cyber premiums reported to the NAIC dropped to $7.08 billion in 2024, down 2% from 2023. “Alien” or non-U.S.-domiciled insurers write a significant share of the market, Aon added, estimated at $2.6 billion in 2023 based on the limited data available from the NAIC.

At the same time, policy count also decreased 0.5% after rising 11.7% in 2023. That said, policy count for 60% of the insurers writing over $5 million in premium in the U.S. market increased.

The market also ramped up in competitiveness in 2024, Aon observed. While the number of insurers providing cyber coverage in the nation remained steady at 218, the portion of the market written by the top five largest insurers dropped to 30% from 32%.

In terms of market concentration, cyber coverage written as an endorsement remains the most heavily concentrated market, with 46% written by The Hartford. The primary and excess standalone cyber markets are less concentrated with Travelers and Chubb each writing 10.2% of the primary cyber market and Starr Companies and Fairfax Financial writing 9.5% and 8.2% respectively of the excess cyber market.