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Cyber insurance buyers that don’t have necessary risk mitigation security controls in place could face higher rates, nonrenewals or declines by insurers, Amwins Group Inc. said in a report Wednesday.
The Charlotte, North Carolina-based wholesaler said on top of increasing rates and more restrictive terms, the lack of multi-factor authentication among policyholders is proving to be a “challenge” when securing cyber liability coverage.
“Moving forward, the market will require insureds to demonstrate they have the necessary risk mitigation security controls in place, such as multi-factor authentication on remote access, email and/or privileged IT accounts as well as backups in the cloud (or otherwise segregated from the network),” Amwins said in its Q2/Q3 2021 State of the Market report.
Ransomware, an issue most often triggered by lenient security controls, has been the biggest claims driver over the past year in both frequency and severity, Amwins said.
“Currently, we are seeing underwriters put pressure on the security controls employed by insureds to better mitigate risk exposure,” it said.
Specialty insurance markets have experienced some of the hardest market conditions most have ever seen in the last two years, James Drinkwater, president of Amwins and Amwins Brokerage, said in the report.
“The market continues to be dynamic. While we have seen a deceleration in the rate environment in some areas, we are seeing dramatic increases in others,” Mr. Drinkwater said.
All professional lines are feeling the effects of a hard insurance market, with cyber liability continuing to experience the greatest degree of change, Amwins said.
Very few markets are willing to offer $10 million limits on cyber risks. “Most accounts that purchased a $10 million limit from a single carrier in 2020 are now seeing those limits cut to $5 million – with pricing increasing, sometimes dramatically, on renewal,” the report said.
Directors and officers liability has experienced some degree of rate flattening, but this could abruptly change as activity surrounding mergers and acquisitions and special purpose acquisition companies increase, Amwins said.
For the D&O market as a whole, renewals are seeing between 9% and 12% increases, higher for accounts with losses or greater risk exposure.
In the property market, capacity remains sufficient, with availability dependent on risk perception and rate. Excess and surplus lines insurers are more willing to entertain flat to 10% rate increases in more desirable classes of business, according to the report.
However, the Florida condominium market is seeing rate increases of 15% to 30% as a best-case scenario, following the Champlain Towers tragedy.
The remaining four months of 2021 will be a “bellwether” for catastrophe-exposed business in a year that has already been active in climate-driven claims, Amwins said.
The E&S market remains responsive with surplus lines premiums increasing 22% in the first half of 2021.
In excess casualty, public entity, residential construction and habitational remain some of the more challenging sectors, along with wildfire-exposed risks, according to the report.
“Staying on top of this hard casualty market will require retailers and brokers to provide complete submissions with detailed risk characteristics and get well ahead of renewals,” Amwins said.
Insurance products introduced by insurtech companies will widen in scope, although cyber coverage is expected to continue to be a major focus.