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Cyber insurance offering and performance: an analysis of the U.S. cyber insurance market

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  • Xiaoying Xie

    (California State University)

  • Charles Lee

    (Columbia University)

  • Martin Eling

    (University of St. Gallen)

Abstract

This article examines the determinants of cyber insurance participation, the amount of coverage offered and the performance of current cyber insurers. Our results support the competitive advantage hypothesis, but only partially support the business growth constraint hypothesis. We find that insurers offer cyber insurance to capitalise on their competitive advantage in understanding and pricing cyber risks. In particular, professional surplus insurers and insurers with surplus insurer affiliation demonstrate a competitive advantage in cyber insurance participation. We find limited evidence that insurers participate in cyber insurance to compensate for constraints on business growth. In addition, the type (standalone or packaged) and amount of coverage offered vary substantially across firm characteristics. Standalone coverage incurs higher loss ratios than packaged coverage, demonstrating its riskier nature. Changes in cyber insurance loss ratios are not driven by premium growth but by claim frequency and severity growth, emphasising the significance of cyber insurance policy design.

Suggested Citation

  • Xiaoying Xie & Charles Lee & Martin Eling, 2020. "Cyber insurance offering and performance: an analysis of the U.S. cyber insurance market," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(4), pages 690-736, October.
    • Handle: RePEc:pal:gpprii:v:45:y:2020:i:4:d:10.1057_s41288-020-00176-5
    DOI: 10.1057/s41288-020-00176-5
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    References listed on IDEAS

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    Cited by:

    1. Caroline Hillairet & Olivier Lopez & Louise d'Oultremont & Brieuc Spoorenberg, 2022. "Cyber contagion: impact of the network structure on the losses of an insurance portfolio," Post-Print hal-03388840, HAL.
    2. Caroline Hillairet & Olivier Lopez & Louise d'Oultremont & Brieuc Spoorenberg, 2021. "Cyber contagion: impact of the network structure on the losses of an insurance portfolio," Working Papers hal-03388840, HAL.
    3. Gareth W. Peters & Matteo Malavasi & Georgy Sofronov & Pavel V. Shevchenko & Stefan Truck & Jiwook Jang, 2022. "Cyber Loss Model Risk Translates to Premium Mispricing and Risk Sensitivity," Papers 2202.10588, arXiv.org, revised Mar 2023.
    4. Hillairet, Caroline & Lopez, Olivier & d'Oultremont, Louise & Spoorenberg, Brieuc, 2022. "Cyber-contagion model with network structure applied to insurance," Insurance: Mathematics and Economics, Elsevier, vol. 107(C), pages 88-101.

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