US cyber insurance becomes standalone policy: AM Best

Top cyber insurance writers have shifted their writings to standalone policies and away from packaged policies, according to a June 22 AM Best report.

Due to the general language of packaged policies, insurance companies have faced expensive litigation, while the standalone policies are viewed as more efficient and effective.

Industry observers have predicted that the cyber line of business will be one of the leading growth areas within the property/casualty space. Cyber coverages have been estimated to increase to up to $20.0 billion by 2020.

Comparing 2016 data with 2015, one of the key takeaways is that the top cyber policy writers have shifted from packaged policies to standalone policies or have more accurately filled out the supplement, according to the report. AM Best views this as a positive change. So far, most claims have been covered under traditional insurance products such as Commercial General Liability Policies (CGLP), Business Interruption (BI), or Directors & Officers (D&O), but the extension of implied coverages to these lines was not intended and did not include any exclusory language.

Some court rulings have sided with policyholders, and due to the general language of these policies, and expensive litigation, many insurance companies realized that tailored coverage forms addressing cyber liability risks separate from CGLP/BI/D&O were more efficient and effective.

Total direct premiums written (DPW) in 2016 was $1.3 billion, of which 67.9 percent were on a standalone basis, with the balance reported as packaged policies.

The data is based on the Cybersecurity and Identity Theft Insurance Coverage Supplement, which was initially introduced by the National Association of Insurance Commissioners (NAIC) for year-end 2015.

Comparing 2015 with 2016, DPW for both standalone and packaged policies increased by 34.7 percent.

The transition to standalone cyber policies may contribute to better pricing and reserving methods, which may ultimately lead to refinements in modelling tools and contribute to more accurate understanding of risk aggregation, according to AM Best.

In 2016, AIG wrote the most cyber policies by DPW of the companies included in the report, followed by XL Catlin and Chubb.

Overall, cyber insurance for the majority of this group of companies was profitable and the direct loss ratio decreased by 9.6 percent year on year to 46.9 percent in 2016.

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