Cyber Raised “Alarm Bells” for Brokers in Q4

A record rise of 34% for cyber insurance in the fourth quarter of 2021 marked the largest average price increase seen, and some brokers feel the line may still be underpriced based on loss experience, according to The Council of Insurance Agents and Brokers (CIAB) quarterly market index.

“Cyber continued to raise alarm bells across the industry,” CIAB President and CEO Ken A. Crerar said in the report. “The increase in premiums for that line continued unabated in Q4 2021, and the frequency and severity of Cyber claims continued to climb. The industry must take steps to confront this unique, constantly evolving risk.”

The high prices for cyber came in stark contrast to moderating premiums in other commercial lines, marketing the first time since the post-9/11 hard market when a single line produced an average increase of over 30%. Even the next largest average increase fell far below 15% for umbrella liability. Additionally, across all lines and account sizes, the average increase came in at 8.7%, CIAB reported.

Directors and officers liability prices rose an average of 13%, which employment practices liability and commercial property posted 10.6% and 10.5% increases, respectively. All other lines showed increases of 8% or less.

Despite the skyrocketing rates, brokers noted that the demand for cyber insurance is at an all-time high, with 92% of brokers seeing an increase in buyers looking for coverage, per the CIAB report. However, strict underwriting requirements awaited those buyers. Brokers said underwriters required cyber risk management practices – including multifactor authentication, endpoint detection and response, and privileged access management – just to extend a quote.

CIAB found several brokers unconvinced that cyber prices have even hit adequacy. One Northeastern broker noted cyber was available from almost every carrier at moderate to low pricing. Another respondent from the Midwest stated carriers till weren’t pricing for the exposure based on the losses we’re seeing.

“This suggests that the industry was still grappling with the unique risks cyber posed in Q4 2021 and that there was more inconsistency in how these risks were underwritten by various carriers – unlike older, more well-established risks like commercial property,” CIAB commented in the report.

Cyber claim frequency and severity jumped significantly in the fourth quarter, with more than 80% of respondents saying they saw an uptick in claims in the line. However, brokers also reported incentives for insureds to improve their cyber risk management, with most carriers offering discounts on software solutions and risk mitigation programs.