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Contact: Brianne Spellane
Director of Marketing & Communications

Market Continues Slow Growth; More Client Education Needed to Increase Cyber Defenses

WASHINGTON, D.C. – April 26, 2016 – The Council of Insurance Agents & Brokers has completed its second semi-annual Cyber Insurance Market Watch Survey. Results for the past six months were largely consistent with results from the second and third quarters of 2015.

“We added seven new questions to the survey this round, designed to glean greater insights into policyholders’ cyber insurance buying decisions and the underwriting landscape in the current market,” said Ken A. Crerar, president and CEO of The Council.

Approximately 25 percent of respondents’ clients purchased some form of cyber insurance, up from 24 percent reported in October 2015. Policyholders continued to prefer – and were advised to select – standalone cyber policies (66 percent) over embedded coverages (34 percent), which respondents believe tend to be less comprehensive. Premium prices were generally stable, with 48 percent of respondents saying that rates had stayed the same, 38 percent saying rates had increased and 14 percent saying they experienced a decrease in premium prices.

Respondents reported that capacity is generally available to meet their clients’ needs, but it can sometimes be a challenge to get adequate limits for clients in the high-target industries, such as technology, finance and health care. One broker in the northeast focused on serving the business insurance needs of middle market companies noted that there is, “more capacity emerging at the low end of the market; in classes least exposed – classic toe-dipping by the newer players. Capacity constriction is taking place in working program layers in higher exposure industry segments.”

Respondents overwhelmingly believe that the lack of a common lexicon among the insurance industry, technical practitioners, boards of directors, regulators and other stakeholders, is one of the biggest challenges they face as risk advisors to their clients. Most cyber insurance policies are written on a manuscript basis – individually tailored for each client. One large national broker explained, “There are no standardized forms, so you need to scrutinize each placement carefully.”

“Cyber insurance presents a unique challenge for brokers, because the technical language is foreign to most buyers and there are no common, agreed-upon terms across the industry,” said Crerar. “Our members believe their role is more holistic than just facilitating risk transfer. They are advisors, educators and advocates for their clients as they navigate this new breed of risk.”

Thirty-eight (38) percent of respondents believe their long-term role in managing cyber risk for their clients is to be a proactive adviser on trends and developments in cyber risk. Twenty-six (26) percent believe the primary role of the broker is to facilitate risk transfer and risk financing. Buyers of cyber insurance are motivated by several factors, but 38 percent of respondents believe the primary factor compelling small and medium-sized organizations to purchase cyber insurance is risk transfer. This number jumps to 51 percent for large entities. Close behind risk transfer is post-event response resources that brokers and carriers provide.

“The market has a lot of maturing to do. Only 35 percent of our members’ clients have an information security program in place with capabilities covering prevention, detection, containment and response/eradication,” said Crerar. “Cyber insurance is not a substitute for a strong network defense. Carrier and broker resources can help a firm identify its network weaknesses and evaluate its response plan. But when all that fails—and it will—the financial backstop that insurance provides can help a firm recover and get back to business.”