Aon Publishes Insights on Cyber and E&O Market

Firm identifies how UK/EMEA region can capitalise on buyer-friendly environment

Since experiencing rate increases of over 100 percent in late 2021 and early 2022, the global cyber and Errors & Omissions (E&O) market has undergone a distinct and dramatic pendulum swing, shifting toward a buyer-friendly market in early 2023. According to Aon plc (NYSE: AON), a leading global professional services firm, these changes were largely driven by new and returning markets, declining loss frequency and severity, and more sustainable pricing levels.

In its latest report, Aon, highlights three areas that are expected to shape the cyber and E&O market through the rest of 2023:

• Substantial new capacity will help soften the market.
• War exclusions, infrastructure exclusions and “widespread events” remain in the terms and conditions spotlight.
• The underwriting process is rigorous, but it’s also more comfortable for businesses, if they are well-positioned to share their security narrative.

Buyers can take advantage of market improvements by starting their renewal placement process early and continuing to build relationships with insurers. Businesses have become more prepared, collaborating internally to provide strong strategies around contractual risk management, information security, privacy and operational continuity. An early start can give the risk manager more control and address potential bumps in the road.

Zamani Ngidi, cyber solutions senior client manager at Aon South Africa, anticipates that South Africa may lag, somewhat, in easing on pricing in local cyber markets: “Local insurers typically renew their re-insurance treaties in somewhat ill-timed periods, causing a misalignment of end consumers benefitting from eased market pricing and resulting in renewals falling in a prior period’s reinsurance treaty. Though early adopters of cyber insurance historically benefitted from legacy pricing before the COVID-19 pandemic and staggered rate increases year on year to be in line with global rates, it may still pose some level of increases in the local market.”

“The easy rebuttal is simply to compare local rates with what is available in foreign markets – given that risk maturity is commensurate with what would be expected in other markets. Overall, buyers who have continued to invest in their cyber security posture will find this to be a positive outcome, and we anticipate that more capacity will be made available, and pricing to be more palatable going forward.”

While the cyber and E&O market has many similarities between regions, highlights of the market conditions in the UK/EMEA region include:

Capacity

• Most insurers are looking to grow their cyber portfolios again.
• There is more appetite from markets to move down programs providing much needed competitive tension on both a primary and first excess basis.

Loss Trends

• Loss ratios improved in the second half of 2022; however, ransomware activity has started to increase in Q1 2023.
• More markets are highlighting biometric information collection and disclosures as an area of concern due to an uptick in class actions resulting from improper collection, use or retention.
• Operational technology and supply chain risk continue to be heavily scrutinized by underwriters highlighting the need for quality data collection and presentation at renewal.

Pricing

• The favourable rate environment that emerged in the second half of 2022 has continued into 2023.
• Heightened market competition is expected to result in more favourable outcomes for businesses throughout 2023.

Coverage Considerations

• The effects of recent geopolitical conflict have not emerged; however, underwriters remain cautious about the potential for cyber disruption emanating from Eastern Europe.

“Businesses must build the appropriate team across key internal stakeholder groups, preparing an informative security narrative that gives underwriters knowledge of the efforts taken to build a strong cyber security posture to navigate increasing volatility. By working with a broker who understands the market and the businesses’ coverage needs, buyers can be well-positioned to achieve positive mitigation results and make better-informed decisions,” says Brent Rieth, U.S. practice leader, E&O/Cyber Broking, Aon.

For additional insights, including findings by region, the full global cyber and E&O market analysis is available here.