Early this year, cyber liability rates headed south as serious competition electrified the market.

But as awareness continues to grow around the very real need for this line of coverage, prices are stabilizing in most sectors—and groundbreaking developments could be right around the corner.

Pricing Trends

In tough classes like retail and health care, “rates are probably trending up a bit because of the activity they’ve seen,” says Nicholas Economidis, underwriter in Beazley’s technology, media and business services group. “What’s driving that is loss frequency and loss activity—retail speaks for itself right now, and we’ve seen similar frequency with health care.”

In these segments, “we’re starting to see carriers pull back on the amount of capacity they might want to offer—those that were offering $15 million might only want to put up 10 now,” says Brian Thornton, president of ProWriters. “They’re still in the space, but they’re much more concerned about the product and the exposure. Everyone’s taking a harder look at some of the underwriting and what they could do better going forward.”

Meanwhile, in classes like professional services and small business, pricing is holding mostly steady. “There are fewer players in that space at the moment,” explains Jeremy Israelite, manager of RLI’s cyber/privacy product. “We expect more price stability where we compete.”

Although cyber liability rates have a tendency to “move quicker than some of the other markets” since much of the coverage is written on a surplus lines basis, fluctuations are “somewhat reactionary to the claims out in the market,” Thornton explains. “A small retail account might have been easier to place six months ago. Now, even if it’s small, it might be a little more difficult, or the carriers are asking more questions.”

And for some markets, such as technology firms, rates are heading south. “You have your non-admitted markets and some package markets and new entries into the space, so it’s very competitive,” says Linda Luna, manager of RLI’s tech/cyber/privacy product.

On the Horizon

For larger cyber business, “we’ve seen a big influx of people that already buy coverage asking for quotes for higher limits,” Economidis notes. “A pretty good number of those people have already bought higher limits from us mid-term, which is kind of an interesting phenomenon.”

And the demographic for cyber liability insurance clientele continues to expand beyond big business. “We’re seeing a lot of clients come into the market that were not in the market previously, particularly in industries where the exposures aren’t as obvious as they are in retail and health care,” says Economidis, citing examples like manufacturers, law firms and auto dealers.

“We’re certainly still seeing a lot of small businesses wanting the coverage or being required to carry the coverage, or being more aware of the exposure and more interested in what they can get as far as coverage,” Thornton agrees.

That’s good news considering small businesses are often more vulnerable to a cyber attack—and less capable of dealing with the consequences. “It’s tougher for a small business to absorb a difficult cyber loss than it is a bigger business that’s got a much bigger balance sheet,” Thornton says. “If a small local retailer has a breach and didn’t have coverage, they could be out of business.”

Moving forward, expect heightened focus on the brand and reputational piece of cyber. “That’s where businesses are really seeing damage in the long-term,” Thornton explains. “A lot of that arises out of mishandling a breach once it occurs. So that’s something the carriers are talking about, trying to extend some coverage, even though it’s hard to quantify.”

And keep an eye on how the cyber market transforms in response to outsourcing and the cloud. “What does it mean, and how does it impact exposure? Is it a good thing? Is it a bad thing? Some people are very concerned about it,” Thornton says. “Especially for small businesses, outsourcing is becoming more prevalent. Managing exposure requires really digging into the contract.”

For tips on how to approach contracts, regulatory issues and cyber liability sales in general, keep an eye on IAmagazine.com and upcoming issues of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.