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Cyber insurance has changed from a product that was once hard to sell to one that’s hard to buy, says Jeff Gonlin, Head of Underwriting & Product Development at Emergence Insurance.

An increase in claims means coverage and capacity are harder to find.

Jeff told an Emergence webinar for brokers that the global cyber insurance market was experiencing “a lot of red ink”. An AM Best four-year market analysis showed the annual average premium growth was 20% but the claims rate was up 39.2%.

An S&P Global Market Intelligence report found the industry’s loss ratio in 2020 rose for the third consecutive year to 72.8%. Jeff said that was unsustainable, particularly as insurers had to rely on underwriting income, given no one was earning investment income.

“In Australia, the claim frequency is stable, but the severity is driving loss ratios up,” he said.

Claim statistics

Emergence Insurance’s claim statistics mirror those identified in an IBM market report, with the agency’s average claim severity increasing 31% to reach 3.15 times higher than the average claim severity in 2017.

An Accenture study shows Australia has the third highest level of claims globally, behind the USA and the UK, but on a per capital basis is likely to top the list.

Ransomware is Emergence’s second highest incident, at 31% of claims, behind business email compromise (BEC), but the financial, reputational and operational impacts of ransomware are much more severe.

“BEC can hurt a business, but ransomware can kill it,” Jeff said. “It’s like comparing the common cold and Covid-19.”

Ransomware was “a perfect business model for cyber crooks”.

First responder

Emergence Cyber Breach Coach Peter Furst – a first responder when incidents occur – said the Federal Government had released a new Ransomware Action Plan in a bid to stem the rate of attacks and was considering legislating mandatory reporting and a cyber extortion offence.

He advises brokers and their clients to be more diligent in querying emails that appear suspicious and to beware of “voice phishing or vishing”, in which threat actors try to convince people to surrender control of their computers by purporting to be calling from reputable organisations.

Blake Baxter, Head of Claims and Incident Response, said quick action was essential when a cyber attack occurred, which was why Emergence instantly connected policyholders with a Cyber Breach Coach to take them through the required response mechanisms.

“Key forensic evidence can be lost if we’re not told about an incident immediately,” Blake said. “Sometime policyholders think they have a situation under control, but IT vendors can have a vested interest in covering up the severity of a breach.

“Our experience shows organisations that rely solely on existing service providers to respond to cyber events suffer greater impact, particularly with operational downtime.”

Emergence specialists

Brokers and their insureds need clarity on indemnity quickly and claims handlers must be cyber claim specialists.

When cyber incidents occur, Emergence gives insureds access to a range of specialists, including IT forensics, forensic accountants, lawyers, public relations and crisis management specialists, identity theft specialists and credit monitoring.

Emergence, Australia’s only cyber specialist underwriter, is an award-winning underwriting agency, exclusively focused on providing flexible, innovative cyber insurance solutions to help protect individuals, families and businesses ranging from SMEs to ASX-listed companies.

Emergence was judged the 2019 Insurance Business magazine Underwriting Agency of the Year and was a finalist in that category in 2021. Emergence was a finalist in the same category at the 2019 ANZIIF-Asia Insurance Review awards. (There were no ANZIIF-AIR awards in 2020 and Emergence did not enter in 2021.)

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