On July 12th, The Arizona Tech Council convened a panel of experts for a forthright discussion about cyber insurance. The panel, moderated by PacketWatch’s CEO, Chuck Matthews, included industry experts Anthony Dagostino, CEO & Founder of Converge Insurance; Chris Branch, Chairman of ATS Underwriting; Wes Gates, CIO of the Arizona School Risk Retention Trust (the Trust), and Tracy Foss, Senior Program Director, Risk Program Administrators, a division of Arthur J. Gallagher. The specialist panel explored current market dynamics, discussed changes in underwriting practices, and shared experiences with the claims process. The goal of the discussion was to help member businesses understand how to effectively use cyber insurance in their arsenal of risk management tools and avoid common pitfalls.
Recent estimates show that the $4.8 billion cyber insurance market is growing at a rapid 25% compound annual growth rate (CAGR) and is expected to triple in the coming years. However, as a result of poor underwriting, direct loss ratios have ballooned to unsustainable numbers. Over the past two years, nearly 70¢ of every dollar in premium went to cover losses from claims involving ransomware, funds transfer loss, and business email compromise-related claims.
The resultant impact on businesses as insurers seek to stem losses is huge and wide-reaching. Smaller businesses are reportedly being priced out of the market entirely. For others, cyber insurance premiums are skyrocketing with an average 97% increase in 2021. Some companies experienced up to 300% increases. Businesses lacking key cyber controls were not even renewed. Panel members said they expect that trend to continue. In the first quarter of 2022 premiums for the top 25% of businesses increased an average 83.3%. Companies experienced other impacts from loss mitigation methods employed by the insurers including:
Read the Policy! Make sure you understand what you are getting and the requirements you are obligated to follow.
Make sure you know the Insurer’s Panel Providers which you are required to use in the event of a claim!
Expect more changes to coverages, policy language, premium increases, and underwriting practices.
Consider preventing losses with additional controls or self-insuring some 1st party risks to reduce premiums.
The panel explored and shared experiences on several other topics impacting the use of cyber insurance including:
The panel concluded that ultimately businesses must carefully read every word of the policy being offered, shop around to the myriad of insurers, obtain expert help where needed and judiciously consider what they are purchasing. Five years ago, cyber insurance was relatively inexpensive, and its promises seemed relatively clear and simple. The panel concluded that is no longer the case and businesses can expect more change in the cyber insurance marketplace in the coming years.
If you are considering cyber insurance and would like to discuss the alternatives for your organization, give us a call.