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Although cyber attacks and the resulting financial losses are on the rise, the cyber insurance market is underdeveloped. Cyber cover is often bundled into existing property or liability insurance policies, and in some cases, the policies do not explicitly include or exclude cyber cover at all. This gives rise to "silent cyber", or the risk to insurers of losses from cyber-related claims on existing property or liability insurance policies.

Even when the inclusion of cyber cover is explicit, a lack of transparency in both the policy’s definition of cyber events and its terms and conditions creates uncertainty about the scope of the cover.

In S&P Global Ratings’ view, the development of stand-alone cyber insurance products would reduce the problem by clarifying the scope of the cover. Such products would also be better suited to the complex and dynamic nature of cyber risk.

Even better would be the development of a stand-alone cyber line of business managed via a cyber center of excellence. This would have many advantages for insurers, chief among them preventing cyber-related claims accumulating across many different lines of business, as well as the difficulties in handling such claims. It would also allow insurers to mitigate the risk of silent cyber, as well as take a centralized and coordinated approach to data collection and research, which is vital for accurately calculating risk-adequate premiums.

The pandemic year of 2020 saw a step change in the complexity and sophistication of cyber attacks and, therefore, in the nature of cyber risks. The financial consequences for the victims of such attacks are huge. According to the Hiscox Cyber Readiness Report 2020, the median cost of a cyber attack rose almost sixfold worldwide between 2019 and 2020.

Yet only 26% of the firms sampled in Hiscox’s report have a stand-alone cyber insurance policy. Most rely on generic insurance policies, or have no cyber insurance at all. The cyber insurance market therefore has huge growth potential, but insurers lack the products to appropriately meet expected future demand. Insurers with sophisticated risk management frameworks and those that invest appropriately in cyber expertise are best placed to provide specific cyber insurance products and reap the benefits.

S&P Global Ratings is the world’s leading provider of independent credit ratings. Our ratings are essential to driving growth, providing transparency and helping educate market participants so they can make decisions with confidence. We have more than 1 million credit ratings outstanding on government, corporate, financial sector and structured finance entities and securities. We offer an independent view of the market built on a unique combination of broad perspective and local insight. We provide our opinions and research about relative credit risk; market participants gain independent information to help support the growth of transparent, liquid debt markets worldwide.

S&P Global Ratings is a division of S&P Global (NYSE: SPGI), which provides essential intelligence for individuals, companies and governments to make decisions with confidence.