Cyber insurance is expected to experience significant growth in the next decade, but it is still considered a capital-intensive risk that requires innovative structures to support its expansion, CyberCube reveals.
The forecast indicates that the standalone cyber insurance market in the United States could potentially reach $45 billion in premiums by the year 2034, marking a fivefold increase from current levels.
In order to achieve substantial growth in exposure, product innovation will be essential, beyond simply relying on rate increases as seen in recent years. With the current low penetration rates for cyber risk coverage, insurers and brokers must seek to deepen their reach within organizations, offering larger limits and more comprehensive coverage with clearer terms and conditions.
The growth of cyber insurance is expected to accelerate due to the increasing digitization of the global economy and growing concerns about cyber risks. CyberCube has developed three Compound Annual Growth Rate (CAGR) scenarios for the US insurance industry up to 2034, estimating potential premiums ranging from $17 billion to $109 billion. The US Industry Exposure Database (IED) from CyberCube indicates a standalone premium of $8 billion in 2023.
As cyber risks become more prominent, they have the potential to surpass the financial impact of past natural disasters. The report highlights that at a 20% CAGR, the capital required to manage a 1-in-250 year loss in the US cyber insurance market would be around $121 billion, exceeding the costs of catastrophic events like Hurricane Katrina.
To support the projected growth in the cyber insurance market, a significant increase in capital will be necessary from various sources including insurers, reinsurers, capital markets, and potential private-public partnerships.
The expansion of the market will also require more participation from reinsurers to help distribute and share risks as the industry evolves and expands beyond its current concentrated state among major writers.
According to Alex Tenenbaum, Director of Services at CyberCube and lead author of the report, structural changes are essential for sustainable growth in the cyber insurance market. He emphasizes the need for fuel to accelerate growth, including penetrating the small business sector and the development of the Cyber Insurance-Linked Securities market.
Rebecca Bole, Head of Industry Engagement, highlights that the property and casualty insurance sector has a unique opportunity to establish a resilient market for cyber risk transfer, contributing to societal resilience against one of the most significant risks faced by economies today.
As the understanding of potential cyber catastrophes improves and the financial impact of such events becomes clearer, closing the cyber protection gap becomes increasingly important. The US government has recognized cyber risk as a major threat to the economy and has taken steps to strengthen resilience through initiatives like the National Cybersecurity Strategy.
In conclusion, with the expected growth of the cyber insurance market, there is a growing recognition that the private sector alone may not be able to handle all the losses from catastrophic cyber events, emphasizing the need for collaboration between public and private entities to enhance societal resilience against cyber risks.