Cyber Insurance: A $109 Billion Opportunity by 2034?

Cyber Insurance Will Become a “Peak Peril” for P&C Insurers as the Market Grows

The property and casualty (P&C) insurance sector is on the verge of a significant growth opportunity in cyber insurance, with the potential to build a market that addresses the significant developing economic risk cyber poses. The report “Projecting Cyber Insurance Growth” by CyberCube, a leading cyber risk analytics firm, analyzes the potential growth trajectory of the US standalone cyber insurance market over the next ten years, from 2024 to 2034.

Key Findings of the Report

The report projects that cyber insurance premium volume could grow exponentially over the next decade. CyberCube modeled the market’s growth using three possible compound annual growth rate (CAGR) assumptions: 10%, 20%, and 30%. Based on these CAGRs, the US cyber insurance market could reach $17 billion (10% CAGR), $45 billion (20% CAGR), or $109 billion (30% CAGR) in annual premiums by 2034.

CyberCube’s mid-range growth estimate (20% CAGR) projects a US standalone cyber insurance market of $45 billion by 2034, a fivefold increase from 2023. The report emphasizes, however, that this growth cannot be achieved simply through price increases, which have been common in recent years. Instead, the industry must focus on achieving real exposure growth by increasing the number of organizations purchasing insurance and the amount of financial protection offered through larger coverage limits.

The report also suggests that cyber insurance will become a “peak peril” for P&C insurers as the market grows. At a 20% CAGR, US Standalone Cyber Insurance losses could exceed Hurricane Katrina’s, the most significant insured losses from a natural catastrophe to date.

Capital Requirements: The report highlights the need for the (re)insurance market to substantially increase capital allocated to the cyber insurance market if they intend to support this potential growth. CyberCube estimates that in 2023 the insurance industry needed $20 billion in capital to manage a 1-in-250-year aggregate cyber loss event. This capital requirement would grow to $121 billion by 2034 under a 20% CAGR growth scenario.

Capital Sources

According to the report, meeting these escalating capital needs will necessitate exploring alternative capital sources, such as:

Capital Markets: Increased capacity from capital markets in the form of insurance-linked securities (ILS) like catastrophe bonds, which allow investors to assume insurance risk.

Public-Private Partnerships: The report points to successful models for managing peak perils in other areas, such as terrorism and flood risk, where public-private partnerships have played a crucial role in providing sufficient capacity.

While acknowledging that the cyber ILS market is still in its early stages, the report highlights its growth potential. The report notes, for example, the recent introduction of 144A cyber catastrophe bonds by major industry players such as Axis Capital, Beazley, Chubb, and Swiss Re, indicating a growing willingness to utilize capital markets for managing systemic cyber risk.

Structural Changes and Call to Action

“Projecting Cyber Insurance Growth” emphasizes that the cyber insurance market must adopt structural changes to achieve sustainable growth. The report’s key recommendations include:

Expanding the Market: The report highlights the significant untapped potential in the small and medium-sized business segments. It indicates that adoption rates for standalone cyber insurance are considerably lower for these businesses compared to large companies, presenting a substantial growth opportunity.

Product Innovation: Insurers and brokers should develop new products and enhance existing offerings to provide more adequate coverage limits, broader coverage terms, and greater clarity on policy conditions to meet evolving customer needs.

Diversification: The report argues for market participants to explore new insurance offerings, such as personal cyber insurance or cyber product liability coverage, and broaden the market base to reduce reliance on peak cyber catastrophe scenarios.

Free Report

The full report is free of charge at the CyberCube website: Projecting Cyber Insurance Growth.

About CyberCube from its website

CyberCube is the leading provider of software-as-a-service cyber risk analytics that quantifies cyber risk in financial terms. Driven by data and informed by insight, we harness the power of artificial intelligence to supplement our multidisciplinary team. Our clients rely on our solutions to make informed decisions about managing and transferring cyber risks. We unpack complex cyber threats into clear, actionable strategies, translating cyber risk into financial impact on businesses, markets, and society.

CyberCube was established in 2015 within Symantec and now operates as a standalone company. Our models are built on an unparalleled data ecosystem and validated by extensive model calibration, internally and externally. CyberCube is the leader in cyber risk quantification for the insurance industry, serving over 100 insurance institutions globally. The company’s investors include Forgepoint Capital, HSCM Bermuda, and Morgan Stanley Tactical Value. For more information, please visit www.cybcube.com or email info@cybcube.com.