Why the Cyber Insurance Market Can Feel Like Purgatory, and How to Ease the Pain
To effectively manage the volatility of the Cyber insurance market, agents must be smart in how they present solutions to their clients.
The Cyber insurance market has seen rapid growth in recent years, with a quick and volatile cycle between hard and soft markets — much more compressed than the slowly evolving cycles experienced across many other business lines.
This volatility is largely due to the constantly changing threat landscape in the Cyber insurance market, and RPS Area President and National Cyber Practice Leader Steve Robinson says this volatility makes it a difficult market in which to operate.
"The perils facing Cyber insurers are constantly changing in ways that cannot be predicted and that means the market has to move quickly," he says.
RPS Area Vice President Dillon Behr cites the 2019 ransomware epidemic — that came after years of soft pricing — as one example of how the Cyber insurance market can change significantly in response to external pressures.
"We saw some very drastic price increases over this period on the heels of lots of ransomware claims in 2018 and 2019 that took a year or so to hit the books," he says. "Insurers then had to work through a whole cycle of increasing rates and tightening controls and, before you know it, claims dip, and insurers started to get comfortable again because of the high premiums they'd been charging."
The market turned again as we moved into 2023, with insurers quickly thinking they were out of the woods as ransomware cases fell and premiums followed suit, with the cycle continuing at pace even if the data didn't back it up.
"Insurers started taking rates back down with less than a year of favorable claims data," Robinson says. "A lot of that was insurtechs and newer players that were accustomed to huge revenue from rocketing rates and higher policy take up.
"Investors that had backed businesses in 2022 were asking why insurers were not growing as fast anymore, and insurers responded by reducing rates to steal market share — but that was counter to everything the market knew over the last three years."
For RPS Area Assistant Vice President Kunal Mallik, this volatility means having the right partner is essential.
"You want to partner with a carrier that not only understands Cyber insurance and has been in the space for the last decade, but one that's actively putting resources into understanding the space better five or even 10 years down the line," he says. "This experience will put your clients in a much better position than if you just select a policy based on price, and end up with someone who just entered the market but might be exiting again after two or three years of they don't price things accordingly."
Learn more about what's next for the Cyber industry in the RPS 2024 US Cyber Market Outlook.