An increase in ransomware attacks has become an "exposure game changer" and is "materially threatening" the profitability of cyber insurance businesses, according to an executive at reinsurance broker Guy Carpenter & Co. LLC.
Erica Davis, leader of Guy Carpenter's North America cyber center of excellence, told journalists Sept. 10 that the Marsh & McLennan Cos. Inc.-owned reinsurance broker had modeled the cyber industry's loss ratio at 50.3% through 2018 on a premium-weighted average, but ransomware attacks have "ramped up" since then.
She added that the cyber line's profitability is critical to expanding products; if the business fails to turn a profit, "the development of cyber risk transfer solutions will be stunted further."
The rise of ransomware was one trend holding the cyber insurance industry's growth back, according to Davis. Despite the line's historical profitability and projections of "hypersonic product growth," expansion has actually slowed in recent years and the business is showing signs of "growing pains." Data from Guy Carpenter sister company Marsh JLT Specialty showed that only 42% of businesses buy a cyber insurance product, she said.
The flattening growth is "directly at odds with the heightened threat environment and the increased valuation of intangible assets," according to Davis, and that is creating a protection gap that will only worsen.
Davis cited a 2019 study by Cybersecurity Ventures which stated that by 2021 cybercrime will cost in excess of $6 trillion. In contrast, today's cyber insurance market is roughly $5 billion in gross written premium. "The projected cyber loss amounts are not absorbable or sustainable in the current insurance market," she said.
Other factors inhibiting the cyber insurance industry's growth, according to Davis, include the ever-shifting exposures and aggregation of risk.
Reinsurance is available to help insurers bear their cyber exposures. Davis said the reinsurance industry is"supportive" and recognizes the growth opportunity, but reinsurers are "grappling those same aggregation issues that insurers are faced with."