2022 Midyear Cyber Insurance Market Outlook
A special MCSA thank you to Zywave for providing this market outlook for cyber insurance. Reprinted with permission.
The past year has seen a rapidly hardening cyber insurance
market as cyberattacks have surged in both cost and frequency.
This increase in attacks has, in turn, resulted in a rise
in cyber insurance claims and subsequent underwriting losses.
Amid these market conditions, most policyholders experienced
higher cyber insurance rates at their 2022 renewals,
with many insureds seeing double-digit rate increases. In
fact, industry data shows that rates rose by as much as 50%-
100% during the first quarter of the year, depending on
policyholders’ specific exposures, loss history and risk management
measures. Insureds have also begun encountering
coverage restrictions, further scrutiny from underwriters
regarding cybersecurity practices and exclusions for losses
stemming from certain types of cyber incidents—namely, acts
of cyberwarfare related to international conflicts and other
increasingly prevalent cyberattack methods (e.g., ransomware).
Looking ahead, policyholders who fail to adopt proper
cybersecurity protocols or experience a rise in cyber-related
losses may continue to face rate increases and coverage
limitations for the foreseeable future.
Developments and Trends to Watch
Increased nation-state threats and coverage exclusions—
Nation-state cyberattacks have become a growing concern
over the past year, especially as the ongoing Russia-Ukraine
conflict contributes to global cyberwarfare worries. In March
2022, the White House issued a statement warning U.S. organizations
that nation-state cybersecurity exposures stemming
from Russian attackers would likely increase in the
coming months. The federal government also introduced new
initiatives to harden the nation’s cyber defenses against foreign
threats and urged businesses to follow suit. Apart from
elevating their cyber defenses, some insureds have sought
coverage for emerging cyberwarfare risks. But, these policyholders
have likely faced challenges obtaining such coverage,
primarily due to war exclusions, which generally state that
damages from “hostile or warlike actions” by a nation-state
or its agents won’t receive coverage. Cyber insurance policies
are not immune to war exclusions. However, recent court cases
and insurance industry shifts have both broadened and
narrowed aspects of the scope of war exclusions as they pertain
to cyberwarfare, creating confusion and posing potential
insurance gaps among policyholders.
Elevated ransomware concerns—Ransomware attacks have
skyrocketed in recent years, affecting many businesses but
especially small- and medium-sized establishments. Yet, according
to industry data, ransomware activity decreased by
20% in the first quarter of 2022 compared to the fourth
quarter of 2021. This is likely due to international law enforcement
operations disrupting several high-profile ransomware
groups since the beginning of the year. Nevertheless, industry
data confirmed that ransomware attacks still contributed
to 32% of overall cyber-related losses in the first quarter of
2022. Further, costs stemming from ransomware attacks remain
on the rise. According to data from cybersecurity company
Palo Alto Networks, the average ransom payment
reached $925,162 in the first five months of 2022—up 71%
from last year.
Heightened business email compromise (BEC) risks—BEC
scams entail a cybercriminal impersonating a legitimate
source within an organization to trick their victim into wiring
money, sharing sensitive data or engaging in other compromising
activities. These scams are among the most expensive
types of social engineering losses, and they have emerged as
a major threat. According to the FBI, BEC scams caused more
than $43 billion in losses since 2016, with such losses increasing
by 65% between 2019 and 2021 alone.
Tips for Insurance Buyers
• Work with trusted insurance professionals to secure cyber
coverage that meets your unique needs.
• Start the cyber insurance renewal process as early as
possible and be prepared to complete supplemental applications
regarding your cybersecurity practices.
• Take advantage of loss control services offered by insurance
carriers to strengthen cybersecurity measures.
• Focus on employee training to prevent cybercrime from
affecting your operations.
• Establish an effective, documented cyber incident response
plan to minimize damages amid a cyberattack.
This outlook is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2022 Zywave, Inc. All rights reserved.