A turbulent start to 2021 means the year remains challenging for many insureds. So far, 2021 has delivered devastating winter storms, high-profile cybersecurity attacks, and tightening underwriting standards. Sectors that enjoyed historic competitive pricing may now face rate increases, higher deductibles, and more stringent underwriting measures. Companies are advised to take early and thorough action to prepare for insurers’ scrutiny

Influencing Factors in Cyber

Cyber insurers continue to update underwriting and pricing models to navigate today’s cyber threat landscape. Ransomware losses continue to increase in both frequency and severity, with average payouts trending upwards. Systemic events perpetrated by hostile state actors, such as the attacks on Solar Winds and Microsoft Exchange, continue to fuel concerns over systemic risk. To maintain financial stability, several insurers are adding new policy exclusions related to Solar Winds, Microsoft Exchange, and governmental shutdown events.

Rate Increases

Many insureds will see rate increases on their cyber programs throughout the second quarter of 2021. In a number of scenarios, insureds should anticipate rate increases exceeding 100%. This includes those with large aggregations of personal information and those with significant business interruption exposures, particularly insureds with physical operations such as manufacturing and transportation.

Insureds who have historically enjoyed ultra-competitive pricing may also experience significant rate increases as insurers re-evaluate minimum premiums per million dollars of coverage, minimum excess rates, etc.

The Importance of Security

Insureds should also expect limited appetite from the marketplace if the business lacks basic security protections, such as multi-factor authentication, a strong backup strategy, and business continuity planning. Insurers continue to use third-party or internal scanning tools to review an insured’s public-facing assets. Remediation may be required in order to offer terms if severe vulnerabilities are found, such as open ports, lack of encryption, or indications of exposed and/or weak passwords.

Impending Limits Management

In addition to more strict underwriting standards, insurers are actively practicing limits management to avoid deploying their full capacity for a single applicant. Many insurers are unwilling to provide limits that are highly exposed to ransomware losses, typically limits exceeding $5,000,000 for a single layer. Some insurers are also requiring more advanced security controls, such as endpoint detection response, in order to consider limits higher than $3,000,000.

Insurers are also increasing minimum waiting periods for business interruption and minimum retentions offered based on an insured’s size, limits purchased, and dependence on third parties.

The Upside of Limitations

While few insurers have implemented drastic coverage changes, several insurers have expressed a willingness to curb ransomware losses via coverage limitations. These limitations may apply to ransom payments, privacy breaches, regulatory investigations, or any resulting loss, such as business interruptions.

New Interest in the Market Segment

Although the marketplace continues to harden primarily due to increased claims activity, several new insurers or managing general agents have emerged and expressed interest in this market segment.

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