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Cyber insurers passed a tipping point in 2020, with loss frequency and severity outpacing pricing increases and tougher underwriting, according to a new report from Aon.
Claim severity rose significantly in 2020, according to Aon’s analysis, with many clients seeing eight-figure ransomware losses. In terms of frequency, Aon typically saw three new errors and omissions (E&O)/cyber claims each day. This is up nearly 100% from 2019, with ransomware up 486% between the first quarter of 2018 and the fourth quarter of 2020, and 150% between 2019 and 2020.
Cyber insurance prices have been trending upward for some time, usually ranging from 5% to 10%. Aon noted that most insurers have said those rate adjustments were not enough to compensate for the increase in frequency and severity of losses.
Pricing began to shift dramatically at the end of 2020, hitting an average 15.8% increase on primary layers, and Aon predicted price hikes between 20% and 50% for the remainder of 2021. Excess cyber capacity is trending toward higher prices than the primary layers, and insurers are cautious in deploying their capacity on limits.
The ransomware events and supply chain attacks in 2020 have prompted insurers to implement coverage changes, Aon found. Underwriters are reviewing business interruption (BI) and dependent BI waiting limits, boosting them to 24 hours in some cases. In the case of dependent BI and ransomware, insurers have also moved to limit aggregate exposure with sublimits or coinsurance, and Aon warned of the impact on the overall coverage.
“While insurers are using these approaches to limit their exposure, these coverage restrictions are not designed to only apply to a ransomware or cyber extortion insuring agreement. Rather, the restriction is written such that it applies to ransomware as an attack vector (i.e., a ransomware event), and hence may limit coverage for any loss that would arise from such an attack,” Aon commented.
While ransomware has been rising, data breach and privacy events appear to have dropped in 2020— down 60% for the first decline in five years, Aon found.
On the E&O side—which covers media liability, miscellaneous professional liability and technology E&O— Aon said pricing increases reached an average of 10.5% at the end of 2020. What’s more, over half (58%) of the top 12 underwriters in the space said they would press for rate increases over 30% in 2021. The tech E&O risks to watch out for in 2021 include vulnerabilities in remote desk protocol (RDP) software and new product offerings from traditional industries that could create gaps in existing insurance programs, according to Aon.
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