AM Best: Global cyber insurance to remain profitable despite competition

By Michael Loney

July 8 - (The Insurer) - Global cyber insurance profitability is expected to continue over the intermediate term despite ongoing competitive pressures, AM Best has commented while maintaining its stable outlook on the segment.

In a segment report on global cyber insurance, AM Best said: “Despite softening market conditions globally since 2023, the global cyber insurance market is anticipated to maintain strong and steady growth in the years ahead.”

The rating agency cited Munich Re figures that showed global cyber insurance premiums grew 7% in 2024 to $15.3 billion and are projected to increase at an average annual growth rate of more than 10% through 2030.

While U.S. direct written premiums modestly declined in 2024, AM Best said that a significant area of potential U.S. growth will stem from cyber insurers addressing the protection gap, especially among small and medium-sized enterprises.

“This presents a major opportunity for market expansion as awareness and adoption of cyber insurance continue to rise within the SME segment,” the report said.

AM Best expects international markets to steadily gain a larger share of the global premiums in the coming years.

“Given that European and Asian markets are generally less mature relative to the U.S., it is reasonable to expect that these regions will experience greater market penetration in the future,” the report said.

Elevated competition has led to rate decreases since 2023 and a buyer-friendly market.

“Despite the recent declines in rate, insurers are continuing to deploy the necessary capital to meet the demand for cyber insurance both currently and in the future. Fundamentally, the market’s expansion is underpinned by increasing awareness of cyber risk and the need for risk transfer solutions to protect against the growing threat of cyber crime,” the report said.

The expansion of capital has been fueled by more carriers and reinsurers entering the segment and, to a lesser extent, alternative capital providers.

Existing players have also responded to competition by raising their limits.

“This has led to higher available limits and more flexible and favorable terms for buyers,” the report said.

Most reinsurance capacity continues to be through proportional covers, but more recently, there has been a shift toward non-proportional covers for greater tail protection.

"The insurance-linked securities and catastrophe bond markets have become important sources of alternative capital and diversification for the market,” AM Best said, pointing to over $750 million being deployed in 144A cyber cat bonds in 2024.

AI ENHANCING RISK ASSESSMENT

AM Best also highlighted that insurers are leveraging AI and large language models to enhance risk assessment, analyzing vast datasets to evaluate an applicant’s cyber hygiene and exposure.

“This should allow for better risk selection and more accurate pricing of risk in the future. In recent years, the industry has moved away from highly manual questionnaire-based underwriting and toward continuous, API-driven assessments and monitoring,” the report said.

“Advanced models ingest real-time data from clients’ networks, enabling dynamic premium adjustments based on an insured’s security posture.”

However, AI is also enabling cyber criminals to automate attacks and exploit vulnerabilities at a much larger scale.

“Further, AI can enable very convincing and highly personalized attacks against individuals and businesses, which could increase success rates for cyber criminals,” the report said. “It will be critical for businesses to increase cybersecurity awareness amongst employees within their organizations and adopt AI-driven cybersecurity solutions to counter these evolving cyber threats.”

Regulatory and compliance requirements have helped push businesses toward cyber insurance adoption, particularly related to data protection.

“Major enhancements or refinements of the legislation related to data privacy and IT protection (such as the EU’s Cybersecurity Act) are, however, expected to further increase awareness and support the demand for cyber covers in certain markets,” the report said.

AM Best also noted that insurance companies have recently been the target of multiple cyberattacks, reflecting a growing threat to the industry.

“Insurers with huge amounts of policyholders’ data, loss control information, and other sensitive client information are targets for hackers, and it is crucial for insurers to fortify their systems to prevent fraud, breaches in internal controls, and business disruptions due to cyber risk,” the report said.