Over the past several years, Cyber insurance has become a vital line of coverage for tech companies due to the increase in sophisticated cyber-attacks. Just one successful attack can provide access to tens of thousands of businesses down-stream. The Kaseya ransomware attack, for instance, is just one of the recent incidents that made headlines. In addition to more frequent and sophisticated cyber-attacks, ransomware and resulting demands are growing, and the average ransom demand is now roughly $220K.
Unfortunately, an increase in cyber-attacks also drives up the number of insurance claims and premium costs. The market has experienced a 67% increase in claim activity from 2019 – 2020 and is expected to be significantly higher in 2021.
As a result, obtaining sufficient cyber insurance is becoming a challenge for tech businesses, especially for larger companies, due to several reasons:
- More difficult qualification process for coverage: Historically, cyber insurance policies have been inexpensive with lenient underwriting requirements. With limited numbers of initial cyber claims, many carriers have been prompted to offer higher limits and expanded coverage for additional premium.
Fast forward to today, and the environment is quite different. Claims activity has increased, and unlike other types of coverage, such as property, carriers do not have the ability to segment their book of business to pass premium increases onto businesses with more risk (e.g., higher property insurance rates in hurricane or flood zones). Cyber risk does not discriminate, as most companies are equally exposed. This volatility has led to premium increases of about 30% for most renewals and more vetting during underwriting.
- Cyber insurance coverage supply issue: To make matters worse, over the past few months, at least two major cyber insurance carriers in the market have hit a capacity limit and are not able to quote certain new accounts, such as large tech companies with high coverage needs. Other carriers have simply moved away from cyber insurance altogether.
Yet, some cyber insurance companies are still trying to think creatively by turning to re-insurance markets to satisfy the demand of high coverage amounts for large tech companies. In this arrangement, the re-insurance company provides coverage beyond what the insurance company is willing to offer. For instance, if a tech company needs $3 million dollars in coverage, but the insurance company is only willing to cover $2 million, they will supplement the policy with $1 million from the re-insurance market.
So, you might wonder, if insurance and re-insurance markets combined can provide sufficient coverage, then why is there a limited amount of coverage available in the market? So far, only four re-insurance companies have been supplying about 60% of the market, which limits the amount of coverage they can offer.
This presents a cyber insurance coverage supply issue.
But there’s hope. Despite the current volatile conditions, there are things your business can do to mitigate market influences including:
- Learn what measures to put in place to present your company in a more favorable light to insurance carriers in order to qualify for cyber insurance.
- Combine Tech E&O and Cyber coverages.
While the above points are simple, you might not know where to begin implementing them. Luckly, PSA has created a free e-book, How to Buy the Right E&O and Cyber Coverage for your Technology Business, which discusses how to qualify for coverage and what terms your bundled Tech E&O and Cyber policy should include to keep your premium costs low, yet secure sufficient coverage.
If you have any questions regarding the content of this post or the ebook, or you are interested in getting an E&O and Cyber policy for your business, feel free to contact me at cmorsberger@psafinancial.com.
Download our free e-book to learn how to select and qualify for sufficient E&O and Cyber policy for your technology business.
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