The market for cyber liability insurance is poised for substantial growth in the coming years. In 2021, reported premiums reached a staggering $9 billion, a significant milestone for this line of commercial insurance. Forecasts suggest an annual growth rate of 25%, projected to exceed $22.5 billion in the next couple of years. This growth outpaces nearly all other commercial insurance sectors.
Recognizing the Need for Coverage
The escalating demand stems from businesses recognizing the critical need to mitigate cyber risks. Whether small, medium, or large enterprises, awareness of the potential devastation caused by cyber events is prompting them to seek coverage. The acknowledgment of this risk is the silver lining amid the growing challenges.
Challenges in Underwriting
However, insurers are facing challenges in underwriting large risks due to the escalating frequency and severity of cyber attacks. The expanding attack surface, encompassing various electronic devices connected to networks, has amplified vulnerabilities. This trend makes it increasingly easier for hackers to infiltrate systems, inflict damage, or deploy ransomware.
Evolving Underwriting Standards
To address these issues, insurers are adapting their underwriting standards. They are implementing clauses that emphasize shared responsibility between the insured and the insurer. This includes contractual conditions mandating preventative measures and reasonable due diligence on the part of policyholders, such as ensuring multi-factor authentication, regular software updates, and robust security patches.
Balancing Mitigation and Policy Availability
While this shift towards more robust underwriting is beneficial in preventing cyber incidents, it also ensures the continued availability and affordability of policies. Insurers are striving to avoid excessive losses by encouraging proactive risk mitigation. This dual approach benefits both insurers and policyholders, maintaining policy availability and reasonable pricing.
In essence, a comprehensive mitigation strategy, whether initiated by the insurer or the insured company, remains crucial to sustain policy availability and ensure reasonable pricing in the evolving landscape of cyber liability insurance.
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