Can cyber insurers continue to control loss ratios?

Steady premium rate increases over the last few years mean Canada’s cyber insurance environment can be categorized as stable with some return to profitability, says Matthew Friesen, vice president of central sales at Western Financial Group.

Previous reporting from Canadian Underwriter showed that by 2022 cyber premiums were increasing between 40% and 100% for low-risk clients, and between 100% to 400% for high-risk clients, according to Aon Canada.

That jibes with what Charlie Stenger, CEO of GST Specialty, a boutique insurance wholesaler in Kansas City, Missouri, saw in the United States around that time. “Premiums doubled and then doubled again — on average, they were up [about] 200% over a 24-month period,” he says.

“So that naturally is going to bring your loss ratio down, because you’ve got more premium dollars collected, even if you have your same number of bad problems, you’ve at least doubled your premium that you’ve collected.”

But now softening market conditions for cyber are explained by new entrants, as well as re-entrants from legacy markets that had previously ceased offering the product, leading to heightened competition, says Lindsey Nelson, head of cyber development at CFC.

Now there is concern increased claims, more competition, and reduced rates could start depressing profitability again, Friesen adds. “We may see some up and down years, but overall cyber can be a sustainably profitable coverage line into the future as we see the product line grow and advancements in technology to protect businesses improve.

“The larger the pool of the many purchasing cyber coverage becomes, the more stable the pool of protection will be, even amidst growing losses,” he says.

Covering losses

Another thing to consider: cyber markets have more tools to prevent losses in the first place compared to other lines of insurance business.

“They’re adding a lot of value back, and it would seem to me likely that they are going to avoid claims in a way that you can’t as easily in property or vehicle damage,” says Adam Mitchell, CEO of Mitch Insurance. “There’s only so much you can do to reduce somebody’s risk of a vehicle accident out there with a big fleet. But there’s a lot I can do to educate you on your servers and your website and your presence, and we can just start shutting doors…”

Greg Markell, president and CEO of Ridge Canada, says the industry will be able to make a profit on cyber despite recent high loss ratios. “We’ve never once in our history written a three-figure loss ratio,” he says. “So, do I think that you could make money, make a profit on cyber? Absolutely, I do.

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“It just takes discipline. If you’re not showing discipline in your underwriting and not holding true on underwriting strategy, you’re going to have a difficult time remaining profitable across the portfolio, especially in one that you’re trying to build.”

Generally speaking, pricing of the cyber product is decreasing, while the frequency of events has increased and severity remains consistent, Markell says.

“I don’t think the peaks and troughs are going to be quite as pronounced as they were previously,” he says. “But have we hit the bottom? I don’t know…I don’t know how much longer we can keep going down the hill before we have to start coming back up a little bit.”

Who’s exposed?

Ultimately, cyberattacks can affect any business, regardless of size, policy type or limits. But smaller businesses often face more limits on their cyber insurance coverage compared to larger companies, if they have coverage at all.

“So, the question becomes, on the small business side, do you have the volume to sustain writing at reduced prices?” asks Markell. “Because if you don’t, then you’re going to have a very difficult time if you’re just trying to pick against losses because it is completely indiscriminate.

“All industries have cyber exposure, period, full stop. Some have more than others; some are targeted more than others,” he says. “But at the end of the day, a $10-million business can still put up the same limit loss as a $50-million or $100-million business…”

This article is excerpted from on that appeared in the February-March print edition of Canadian Underwriter.