Ransomware claims drive US cyber insurers' loss ratio up by 10%: Aon
Advisen
Ransomware claims drive US cyber insurers' loss ratio up by 10%: Aon
By Erin Ayers, Advisen
Cyber insurers in the United States saw a 10% uptick in loss ratio due to ransomware in 2019, ushering in a period of tougher underwriting, higher prices, and a renewed focus on risk control, according to a new report from Aon plc.
In its US Cyber Market Update, Aon reported a jump in loss ratio from 35% in 2018 to 45% in 2019, with ransomware poised to continue plaguing insurers.
“Although ransomware has been on the rise for years, it was 2019 when the insurance industry felt the impacts far and wide. Unlike the NotPetya claims of 2017, these losses were not limited to a few large multinationals but were spread across companies of all sizes, and especially affected the small commercial segment. We expect that ransomware will be the main claims story of 2020 as well,” said Jon Laux, head of cyber analytics for reinsurance solutions at Aon.
Loss ratios increased for both standalone and package cyber policies, but Aon noted that the increase was “particularly stark” for standalone, which showed a 12.7% increase. An increase in claim frequency drove the loss ratio rise, offsetting a drop in claim severity from an average of $50,401 in 2018 to $48,709 in 2019. Aon also found that first-party claims represented 65% of all claims costs and standalone policies faced more claims in general than package policies – with 61.5 claims per 1,000 standalone policies compared to 2.8 claims per 1,000 package policies.
Across the industry, increases in loss ratio were the rule rather than exception for individual insurers and they varied widely – Aon cited loss ratios as low as 0.2 percent up to 285.8 percent. Looking at insurers with standalone cyber direct written premium over $5 million, Aon observed increases in loss ratio for 61% of insurers, loss ratio changes of less than 5% for 28% and loss ratio decreases of more than 5% for 11% of insurers.
The insurance market has begun to address the rising claim frequency with rate increases, Aon noted. Rates in 2020 “have been broadly increasing” but the soft market for price had already begun to level off in 2019 with premium per policy showing little change from 2018.
Aon commented, “While this may seem unremarkable, it is a notable shift from the rate deterioration seen in 2017 (-18.3%) and 2018 (-1.7%).”
Despite the uptick in claims, cyber insurance remains a profitable business, Aon said, with an estimated industry combined ratio of 74.5%.
According to Aon, U.S. cyber direct written premium increased to $2.26 billion in 2019, up from $2.03 billion in 2018 and $1.0 billion in 2015. Standalone policies represent $1.25 billion while package policies account for $1.01 billion. Aon found that 192 insurers reported cyber premiums in 2019, up from 119 in 2015. Of those, about 90 insurers wrote more than $1 million and 41 wrote more than $5 million. The top 10 cyber insurers write 69 percent of the direct written premium, a slight drop from 2018’s 70%. However, the report used National Association of Insurance Commissioners (NAIC) data that does not include cyber MGAs, an increasing part of the market that may impact concentration.
The next several years will be a “proving ground” for cyber insurance, Aon noted, as insurers match prices to risks.
“For years now, the thesis of cyber insurance has been that risk mitigation and risk transfer belong together – that insurers can help companies who have suffered from cyberattacks to get back on their feet while working to reduce cyberattack frequency and severity through more effective risk controls,” Aon’s Laux said.
Editor Erin Ayers can be reached at eayers@advisen.com
