Loading up on Cyber Risk Could be a Negative for Insurers’ Ratings

Fitch Ratings Inc. has released a report indicating that from a ratings perspective, the uncertainties of covering cyber risks outweigh the benefits of their potential earnings growth. “At this stage, Fitch would view aggressive growth in stand-alone cyber coverage, or movement to high portfolio concentration in cyber, as a negative to the ratings,” according to the agency’s report, Global Cyber Insurance Market Update, Expanding Threats Amplify Underwriting Opportunity, Loss Potential. More specifically, the report indicated  that insurers “lack a meaningful volume of data on losses and exposures for cyber-related claims, which creates challenges in pricing risk and establishing pricing terms.” While the demand for cyber insurance policies is certainly increasing, policyholders must develop more technical expertise in the field, leading to the question of “whether any long-term role for insurers in cyber risk management will be usurped by more sophisticated firms or Internet providers,” according to the report.