Cyber risk coverage is a fast growing business for insurance firms, but the lack of data on these risks and losses poses a challenge for insurers, and represents a negative credit factor, according to report published on Monday by New York City-based Fitch Ratings.
Cyber insurance is the fastest growing segment of property & casualty (P&C) business, the Fitch Reports says. An estimated US$3 billion in premiums was paid in 2015, according to the report, and that’s forecast to triple over the next four years.
Although traditional insurance risks such as natural disasters are fairly well understood, modeling and available data for cyber risk is “in its infancy,” the report says. This creates challenges for insurers when it comes to establishing policy terms and pricing risk, it notes.
“Determining loss exposures from a cyber catastrophe is difficult as it requires an assessment of events that are feared, but not yet experienced in reality,” says James Auden, managing director at Fitch, in a statement.
The insurance industry faces its own share of cyber risk, given that it is heavily reliant on information systems, including mobile devices. “The onset of cyber threats creates challenges for insurers to securely protect data records, including private customer information, and quickly adapt and recover from any business disruption,” the report says.
“At this stage, Fitch would view aggressive growth in standalone cyber coverage, or movement to high portfolio concentration in cyber, as ratings negatives. Underwriting, pricing and reserving uncertainties currently outweigh the potential earnings growth benefits,” adds Auden.
Photo copyright: maxkabakov / 123RF Stock Photo