Published on: 20-Jun- 2011 | Comments: 0
Publisher’s Note: Marsh Insights: Benchmarking Trends is a monthly newsletter covering purchasing behavior and pricing trends on four groups of coverages: property, casualty, financial and professional (FINPRO), and environmental. Each month we will highlight a key trend or dynamic piece of data for a select coverage and analyze its potential affect on the insurance marketplace. The real-time data for the Benchmarking Trends is sourced from the Marsh’s Global Benchmarking Portal.
Historical Rate (Price Per Million) Changes — Cyber Liability
In the first half of 2011, cyber liability renewal rates—as measured by annual changes in price per million (PPM) of limits—exhibited a decreasing trend. In the first quarter, primary rates declined an average of 4 percent and total program rates decreased an average of 8.5 percent. In the second quarter to date (April, May, and early June), average renewal rates for decreased 2.1 percent and 1.6 percent for primary PPM and total program PPM, respectively.
Median rate changes, however, are likely a better indicator of the market. Large rate movements can skew the average and may provide a slightly slanted view of the market’s direction. Preliminary data shows that there may be an acceleration of the soft cyber liability insurance market as renewal rates continue to fall. The data analyzed shows the median decrease in rates equaled 4.1 percent for both primary and total programs for the second quarter to date. In contrast, the median rate stayed flat for the primary PPM, and decreased 1.5 percent for the total program PPM in the first quarter.
This shows the market for cyber risks remains soft—whether it will continue to soften is difficult to predict. Generally, market capacity has exceeded demand as new carriers continue to enter the market, This is contrasted, however, with a risk environment that has seen substantial negative change in the form of increasingly large, frequent, and highly-publicized breaches with attendant claims being paid by carriers. For the immediate future though, it is a competitive market; insureds may benefit from current market conditions, potentially securing lower rates or improved terms and conditions. Alternatively, organizations may wish to consider increasing limits as costs decrease. Companies that are currently without cyber risk protection may wish to consider purchasing a policy to protect their interests in the face of a data breach or other security lapse.
Distribution of Total Cyber Risk Limits Purchased
Purchasing Trends Monitor
Cyber risk limits purchased averaged US$12.9 million for all industries and all company sizes during the last 12 months. Companies with revenues exceeding US$1 billion tend to have greater exposure to cyber risks, hence they purchase higher limits: this segment purchased average cyber risk limits of US$21 million.
Across major cyber risk-impacted industries—communications, media, and technology (CMT); health care; financial institutions (FI); and retail/wholesale—financial institutions purchased the highest limits. The average cyber risk limit purchased by FIs of all sizes was US$20.9 million; for FIs with revenue greater than US$1 billion, the limits purchased averaged US$43.3 million. Curiously, however, median limits purchased by FIs equaled only US$5 million. This discrepancy highlights that the largest firms in the industry purchased significantly higher limits than smaller firms, slightly distorting the overall industry average.
As an industry segment, communications, media, and technology organizations were also big buyers of cyber insurance. Average limits purchased by CMT companies of all sizes was US$17 million; companies with more than US$1 billion in revenue bought an average of US$27.8 million in cyber risk limits.
There have been a number of stories detailing significant data breaches in the news in recent weeks. Companies of all sizes and in all sectors have been targeted. Many have suffered significantly as a result, whether through negative publicity, financial loss, or loss of trust by its customers/partners. It is essential to understand your company’s cyber risks and the insurance products available to mitigate these exposures. Marsh’s FINPRO Practice maintains a team of cyber experts dedicated to working with you to determine the exposures faced by your company and the necessary strategies to combat these risks.
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