Why 2022 was a good year for cyber insurers

Controls and underwriting actions that cyber insurers took over the course of 2020 and 2021 started paying off last year, a cybersecurity expert told Canadian Underwriter recently. 

“I think the cyber insurance industry in general had a much better year in 2022 than they had in some prior years,” said Tim Zeilman, Hartford Steam Boiler’s (HSB) vice president and global product owner for cyber. “I would guess that most carriers returned to profitability in 2022.” 

Stricter underwriting with more information, lower limits and sub-limits, a more selective appetite for underwriting, and higher premiums in some cases, all had an impact on results in 2022, Zeilman said. He discussed cyber trends and the industry’s outlook for 2023 with CU in an interview last week. 

“At the same time, we saw a bit of a cooling off of ransomware… a plateauing,” he said. “It certainly didn’t grow. It wasn’t as aggressive in 2022 from a loss perspective as it had been in prior years.” 

This observation is in line with another cyber insurance provider, CFC Underwriting, which reported an actual decline in claims frequency for ransomware events in the last quarter of 2022. 

Even though there was a plateauing of ransomware, “at the same time, we saw a significant noticeable rise in financial fraud losses,” Zeilman said. 

The reason for the change in ransomware is subject to speculation. “The big unknown is what happens with ransomware — whether the cooling off that we saw in 2022 turns out to be temporary or permanent,” Zeilman said.  

One possible reason for the cooling off is that resources that might have been devoted to cybercrime for profit in the past few years are now doing cybercrime for political purposes due to the war in Ukraine. “Should that conflict abate at some point, will those resources go back to being devoted to cybercrime for profit?” Zeilman asked. “All of that is speculation.” 

Overall, because of the shift in the cyber insurance market last year, carriers are starting to see better loss ratios and combined ratios. And while rates are not decreasing, there has been a slowing down in rate increases, Zeilman reported. As well, “carriers pulled back, and we’re seeing that loosening up a little bit.” 

CFC also believes the cyber insurance market has never been in a more stable and positive position going into 2023, largely because of the learning experiences over the last two to three years. 

Lindsey Nelson, CFC’s cyber development leader, told CU earlier this month that she believes the price of the product is now right for the threat landscape. Zeilman agreed, saying “that’s the industry consensus.” 

And while brokers saw some difficult renewals over the last few years, it “certainly feels like [brokers are] out of the storm with that,” Nelson said. “It’s going to be much smoother in terms of managing client expectations for this year [regarding] the pricing component.” 

But now is the time to be cautious, Zeilman warned. “We don’t want to go back to the really undisciplined days that we saw prior to 2020 or so. 

“It’s certainly been a couple of tough years for carriers, and in the last year or so, it’s been tough for buyers,” Zeilman said. “And hopefully we get back to a place where it’s a little bit easier for buyers.” 

 

Feature image by iStock.com/Suebsiri