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The 2024 cyber landscape: premium fluctuations, claims surges, and the domino effect of the Lloyd’s War Exclusion

By Archie Whitehead, Tech, Media and Cyber Broker at New Dawn Risk

The global cyber insurance market was worth $7.8 billion in 2020, with forecasts suggesting this will grow to a $20 billion industry by 2025. Cyber premiums have reduced drastically over the past 9-12 months, with rate decreases being unsustainably low at times, especially on higher excess placements.

However, market conditions at times have not quite matched the current claims environment seen by cyber insurers. For instance, a report by cyber insurer Coalition showed ransomware claims increased by 27% during the first half of 2023 and led to debilitating losses.  Coalition stated that “Ransomware claims severity reached a record high in first half of 2023 with an average loss amount of more than $365,000. This spike represents a 61% increase within six months and a 117% increase within one year.”

Furthermore, the softening of the cyber market has been exacerbated by carriers broadening the scope of coverages encompassed within their cyber policies, with certain insurers adding coverages for non-cyber triggers as standard, such as non-IT Dependent Business Interruption Security & System Failure as well as Bodily Injury & Property Damage.

Volatility and market fluctuations to continue

The increase in severity of claims, broadening scope of cover of cyber policies and premium decreases poses the question of how sustainable the current trends in the cyber market are, and when the tide will turn back to another market hardening. At times, it is clear that cyber is still an immature and volatile insurance market, with carriers’ fluctuating their appetites and premiums year-to-year, providing a lack of long-term consistency for both brokers and insureds. While there is hope for consistency in 2024 by both carriers and brokers, it is likely that the cyber market is still several years away from a stabilised transactional functionality.

Lloyd’s War Exclusion domino effect

We can expect to see flat premiums on a more consistent basis around Q2 2024, when the first round of accounts that experienced these large rate reductions come up for renewal. There may also to shift in the current market’s conditions after 1/1 reinsurance renewals, as reinsurers may press certain US cyber-MGAs that they are pumping their capacity into for more sustainable writes. The question also remains how many of these US cyber-MGAs will be enforced by their reinsurers to use the recently mandated Lloyd’s war exclusion going forward. As a significant amount of Lloyd’s capacity is provided to many US company markets, we could expect to see these US carriers lose their current perceived competitive advantage over London having predominately only being positively affected by the recent Lloyd’s mandated war exclusion up to this date.

Stability remains far-off

There is still uncertainty around how the cyber market will continue to develop, and much of this will depend on how the current claims trends continue to develop – especially if there is a new systemic cyber event (such as NotPetya), which could shock the market. 2024 will likely see a continuation of uncertainty and market fluctuations, but a turn of the tide could start to be seen by April 2024. However, a return to consistent renewal rates will likely not be widely seen until later in the next calendar year.