New cyber insurance capacity is increasingly matching fast-growing demand, S&P

A recent analysis by credit rating agency S&P Global Ratings has revealed that new cyber insurance capacity is increasingly matching fast-growing demand, particularly within the United States, and greater competition is said to be leading to decreasing retention levels, as well as lower costs for coverage.

Cyber insurance remains one of the fastest-growing areas within the global insurance industry, with premiums anticipated to exceed $20 billion by 2025, up from an estimated $15 billion in 2023.

In late April, S&P held it’s latest Quarterly Cyber Focus conference, where the company provided an overview of the changing dynamics that they have seen across the cyber insurance market.

Manuel Adam, S&P Global Ratings Insurance Ratings analyst, commented: “S&P Global Ratings is closely monitoring any reduction of margins and potential negative impact this might have on our capital and earnings, and risk exposure assessments for rated insurers and reinsurers.”

Moreover, discussions at the conference also focused on the evolution of cyber risk underwriting, which has enhanced traditional qualitative research with tools that enable data-driven scenario analysis.

S&P explained that this increased use of modelling could ultimately reduce costs and even increase pricing and risk assessment accuracy.

However, the agency warns that it could also create a risk of rigidity that likely requires “conscious incorporation of flexibility into models–not least to ensure continued individualized risk underwriting and good decision making at insurers’ portfolio level.”

The agency also flagged flexibility as being a key factor towards capturing changes to cyber risks.

This is especially important given the widespread adoption of artificial intelligence (AI) which is anticipated to deliver significant automation of cyber attacks, and increase their effectiveness through personalisation.

Moreover, cyber risk management among U.S. local governments was also discussed, most notably around how responses to cyber incidents has become, generally, more rapid and more transparent among both large and smaller entities.

Alex Louie, S&P Global Ratings Americas Public Finance analyst, explained that insurance was only part of an effective cyber risk management approach and should be complimented by detection and protection capabilities.

He noted, however, that, due to competition, and despite sometimes rising premiums, “more and more issuers are securing policies.”

He said: “Occasionally we still hear about an entity foregoing insurance, typically for budgetary reasons, Event then, most of them still plan on obtaining insurance in the future and have chosen to invest in cyber security in other ways in the near term.”

Further, the conference also heard how some smaller municipal governments, given the choice between expensive commercial cyber coverage and the risks associated with opting out of insurance, are reportedly pursuing a third option by forming cyber risk pools that provide mutual support.

S&P Global Ratings Americas Public Finance analyst David Smith, added: “We view the proliferation of cyber risk pools as a positive development in public finance, particularly for those entities priced out of the private insurance market.”

He further emphasized that the risk pools often provide smaller local governments with access to resources they otherwise couldn’t afford, which includes IT professionals and consulting services, and encourage cybersecurity best practices with checklists that members are expected to adhere to.

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