Demand for cyber insurance rose by 21 percent across all industries in 2013 compared to 2012, and early indications in 2014 are that the buying trend is accelerating, according to a Marsh Risk Management Research report.
Marsh found that financial institutions saw the biggest increase of 29 percent in coverage buying, followed by retail/wholesale with an increase of 19 percent. Other industries that saw increases included education (14 percent); professional services (13 percent); communications, media and technology (11 percent) and healthcare (11 percent).
Industries that represent emerging sectors purchasing cyber coverage –manufacturing, power and utilities, and hospitality – showed a combined increase of 37 percent.
The report, “Benchmarking Trends: Interest in Cyber Insurance Continues to Climb,” is a compilation of Marsh’s own customer data specific to the cyber coverage segment.
“What you are seeing is a continued awareness of cyber risks as well as a maturation or evolution of the product itself,” says Bob Parisi, Network Security and Privacy Practice leader for Marsh. “There have been several events that have occurred over the last few years that have continued to push demand for the coverage.”
The amount of limits purchased by individual companies also increased in 2013. More companies purchased cyber coverage with $100 million limits or more. The average limits purchased by companies with revenues more than $1 billion rose by 10 percent in 2013, with financial institutions purchasing the highest limits of $53.2 million – a 9 percent increase from 2012.
Parisi says the request for higher limits is a realization by all industries of their reliance on technology and the “totality” of their risks.
“Companies are looking beyond just privacy and at how technology or the failure of technology would impact their business. They are looking for more business expense or business interruption coverage and buying a broader bucket of coverage,” says Parisi.
Clients are also moved to purchase coverage by the value-added services that come with most cyber policies now, particularly among the small- to mid-market segment that doesn’t have a sophisticated cyber risk or crisis management plan, says Parisi. The Marsh report noted that cyber policies are much broader now than several years ago, and in addition to pre-and post-loss services, many policies now cover third party losses as well as business interruption.
Parisi says competition has influenced this buying trend, as it has also kept pricing for the coverage down. Renewal rates remained stable in 2013, according to the report, and average increases were typically small – ranging between 2 and 3 percent compared to 2012.
“The [money] spent on a policy in 2014 gets you a lot more coverage than what you would have spent for coverage in 2005. You are getting a lot more for your dollar now,” he says.
The significant increase in interest for coverage, as well as new business that was initiated during the third quarter of 2013 as a result of high profile cyber events, has continued and even accelerated so far in 2014, noted the Marsh report.
Parisi says he expects demand and the uptick in coverage buying to continue throughout this year. However, Parisi acknowledges full market penetration of cyber coverage is still a way off. When that does occur, it will be because the coverage will have evolved to more specifically address different industry exposures, he believes.
“I think what we are going to see is cyber becoming less of a discretionary purchase and more of a structural or elemental part of a client’s risk transfer approach,” says Parisi.