Cyber market could rival D&O in size: Howden

Howden’s “Coming of Age” report states that the growth potential for cyber insurance is exceptional, with global premiums projected to surpass $75 billion by 2030.

Although growth in the cyber insurance market has been fueled by annual rate increases exceeding 100% in the first half of 2022, more recent months have seen flat renewals or even decreases of up to 10%.

According to Howden, the dynamics of the cyber insurance industry have undergone significant changes in the past year. There has been a rapid decline in the loss environment, limited capacity, increasing global demand, and a substantial pricing correction. These factors have led to improved underwriting results and a shift towards more stable market conditions.

Howden highlights that the growth potential is immense, as the gross written premium (GWP) has more than doubled in just five years.

If the current growth trends persist throughout the rest of this decade, an ambitious yet realistic scenario suggests that the gross written premium (GWP) in the cyber insurance market could reach a comparable scale to other significant property and casualty (P&C) lines of business, such as Directors & Officers (D&O) insurance.

In certain regions, pricing has stabilized or even decreased, while coverage limits are expanding. The competitive landscape is prompting insurers to make more customized underwriting decisions that align with the risk profiles of individual companies.

The frequency of ransomware attacks in 2023 has increased by nearly 50% compared to the same period last year, and the average ransom payments in early 2023 have almost doubled from those made in 2022. However, despite this rise, there hasn’t been a proportional increase in insurance claims, suggesting that risk mitigation measures are enhancing companies’ resilience.

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The report states that the current conditions are easing, and buyers who have implemented effective risk controls are benefiting from more favorable pricing and terms. This positive development establishes a solid foundation for market growth.

Despite the significant rise in ransomware incidents in 2023, the underwriting performance seems to be relatively stable.

“The groundwork has been laid for a more advanced cyber market.”

Australia ranked eighth on the list of ransomware victims by geography, with the United States taking the lead, followed by the United Kingdom, Germany, Canada, France, Italy, and Spain. On a global scale, the manufacturing industry experienced the highest number of attacks, followed by professional services, education, retail, and healthcare.

According to Howden, while pricing is not expected to be the main driver of market expansion as it was in 2020-2022, the market can achieve sustained growth and maintain its long-term relevance by emphasizing penetration, managing tail-risks effectively, and leveraging reinsurance capacity.

According to Howden, cyber insurance predominantly remains a market focused on large corporations, and there is a need to put more effort into engaging with smaller companies.

Regarding systemic risk, Howden states that the cyber insurance market’s capacity to handle economic losses from significant events will increase over time as it reaches a comparable scale to other major property and casualty lines. This will be possible with sustained pricing levels that align with the associated risks.

The cyber insurance market continues to outpace other areas of insurance in terms of growth, with a remarkable annualized growth rate of 30% over the past decade. In contrast, the broader property and casualty commercial sector has experienced single-digit percentage growth during the same period.

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Howden stated that the cyber insurance market has demonstrated a strong track record, considering the significant progress it has made within a relatively brief period. They believe that the cyber market is on the verge of experiencing potentially game-changing growth.

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