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"Although the yearly economic costs of cyber crime already exceed $700 billion, insured cyber losses are still very small at below $5 billion," said S&P Global Ratings credit analyst Manuel Adam. "This indicates the untapped potential of the cyber insurance market."

We expect the cyber insurance market to increase 20%-30% per year on average in the near future, with a key avenue for growth being small and midsize enterprises, which have a considerable untapped demand for cyber insurance coverage. In the U.S., cyber insurance growth rates for SMEs were more than double those for other industry segments in 2018 and 2019.

Cyber risk underwriting poses various challenges to insurers. The accumulation of claims within a cyber insurance portfolio, given cyber attacks can spread rapidly across the globe in a few seconds, can expose insurers to high financial losses. Furthermore, calculating an appropriate price for cyber insurance is more difficult than other lines of business given that the very dynamic nature of cyber risks and increasing sophistication of cyber crime.

As the market gains critical mass, providers should continue to build out their platforms and product offerings and focus on robust underwriting skills, the report says.

"Insurers will have to offer more relevant products for the market to succeed, and carefully evaluate and monitor exposures, in particular related to potential accumulation risks, to maintain credit strength if they accept cyber insurance risks on a larger scale," said Mr. Adam.
This report does not constitute a rating action.