Virus-related impacts testing cyber insurance market: Fitch

Summary

Fitch expects COVID‑19 related economic impacts to test the growing cyber insurance market due to risks around cloud-related breaches and other operational disruptions that could result in capital constraints and impact ratings.

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Analysis

According to Fitch, direct written premiums for cyber insurance grew 12% in 2019 to $2.2 billion, up from 8% growth in 2018. The market is growing rapidly but the risk management picture is only growing more complex. Fitch is signaling that it sees potential for an increased level of cyber-related operational disruptions stemming from the acceleration of digital transformation initiatives (the reason cloud intrusions were cited), which may challenge profitability and complicate underwriting. Indeed, the direct loss ratio for stand-alone cyber insurance rose from 34% in 2018 to 47% in 2019, the second highest ratio on record (48% in 2015). This is especially true for companies already poorly managing their technology heading into the crisis. Importantly, Fitch is also drawing the connection between these breaches and the negative impact on the financial statement and potential impact on ratings.

With COVID‑19 as the great digital catalyst separating winners and losers in a more accelerated way, the losers are more likely to file claims in the aftermath of breaches. And as more companies increasingly rely on digital technology to operate, it will also likely fuel continued growth in the cyber insurance market in 2020. This places greater emphasis on the need for more accurate cyber risk pricing.

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Denis Bolshakov

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