LONDON, April 11, 2022 - Aon plc (NYSE: AON), a leading global professional services firm, today published its global 2022 Errors & Omissions (E&O) and Cyber Market Review. As further challenges are expected in the E&O and cyber marketplace in 2022, it is crucial that organizations take steps to understand claim trends, their impact on insurers and how to best enter the market when securing coverage.
“It is no surprise that cyber resilience, privacy compliance, third party risk and contractual risk will remain front and center for both underwriters and businesses around the world in 2022,” said Christian Hoffman, Global Cyber Leader at Aon. “As we work to prepare our clients for increased volatility and intensified cyber risks, we encourage decision makers to develop and maintain a long-term vision. E&O and cyber exposures will continue to be a top risk for companies. It’s important that business leaders align their cyber insurance program strategy with their continued cyber maturity efforts so they can make better decisions today and in the future.”
Managing the cyber risk landscape is increasingly complex; in a recent Aon survey, participants around the globe rated the risk of cyber-attacks/data breaches as the number one threat facing companies today. Aon’s new global report quantifies real-time loss and pricing trends to date, provides qualitative feedback from insurers and offers key recommendations for clients to consider in a challenging E&O and cyber market.
Top findings include:
- Loss trends: Throughout 2021, there was a slight reduction in the frequency of cyber claims, although they have risen dramatically since 2018.
- Pricing trends: As of December 2021, E&O and cyber monthly pricing increased by 137.3 percent year-over-year. As clients continued to see dramatic pricing increases, E&O and cyber insurance placement also often required a much more involved underwriting process.
- Structural changes: There was an uptick in the fourth quarter of 2021 in the number of clients reducing overall limit, due to either market capacity limitations or the increased cost of insurance.
- Coverage considerations: Insurers are reviewing their overall exposure to systemic, aggregated and correlated risks related to the software supply chain in recent months. Several insurers are reviewing the breadth of coverage afforded for business interruption (BI) losses, with a focus on limiting their financial exposure to a systemic event by reconsidering waiting periods and restricting aggregate limit exposure.
Aon expects the following core themes in E&O and the cyber market throughout 2022:
- Climbing rate environment: Aon anticipates the first half of 2022 will demonstrate severe rate increases with potential to see stabilization in the second half of the year.
- Increased underwriting rigor: Similar to 2021, insurers offering cyber and E&O insurance are anticipated to bring new scrutiny, applications and underwriting questions into the placement process, evaluating both “standard” security control questions in addition to “real time” issues related to new attack methods. Insurers list a lack of multi-factor authentication, endpoint detection and response measures, and backups as criteria for refusal of coverage.
- Aggregation risk: Insurers are anticipated to shift focus to systemic and correlated risk concerns. Supply chain attack strategies and geopolitical tensions, paired with the reliance many companies have on common technology service providers, will likely drive a focus on war exclusions and infrastructure language in cyber policies.
- Client segment differentiation: Industries with decentralized security strategies as well as those that tend to have heavy merger and acquisition growth strategies continue to show increased loss activity. Consistently aligning security protocols in these verticals can be difficult. Many fast-growth companies are still developing strategies for security, privacy and contractual risk management, while smaller organizations may experience more rigid positions from underwriters. Retention and pricing challenges will likely be ongoing for these organizations.
In evaluating cyber insurance buying behaviors, the report calls attention to how the nature of cyber is highly different from other liability class risks, requiring a more nuanced approach. It also looks at how captives are being used to manage cyber risk, and the opportunity to reframe captives from a tactical, transactional play to one linked to the broader maturity development of risk to help accelerate alignment between network security communities and traditional risk management. For more information, access the full report here.
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