E&O and Cyber Market Review – Midyear 2022

As we work through the second half of 2022, the Errors & Omissions (E&O) and Cyber Insurance marketplace is becoming more buyer-friendly than a year ago.

Insurers continue to stress conservative messaging regarding pricing, underwriting scrutiny and coverage. Uncertain macroeconomic and geopolitical conditions that may impact cyber claims frequency and severity are a focus for many insurers. However, results through midyear 2022 are more favorable than 2021, and that has started to impact pricing and capacity for clients.

Aon’s data shows that claims frequency has declined over 40 percent midyear, year-on-year. While baseline pricing remains significantly higher than in same period of 2020, renewal increases are declining, with some clients experiencing flat to declining rates where overcorrections were made in 2021. More capacity is now available for clients who may demonstrate appropriate risk management and security controls throughout underwriting diligence. Many clients have alternative risk transfer options to consider, a stark contrast to recent renewal cycles where constrained capacity often left clients with few or no choices while working through renewals. Underwriting diligence remains a challenge for many clients, however, the process and requests are relatively more consistent and can be addressed proactively rather than reactively.

Aon continues to focus on timing, process and creativity as fundamental concepts as we advise our clients through an evolving marketplace that is now presenting opportunities for well-positioned organizations. Clients can strategically take advantage of these opportunities, while weighing the value of coverage breadth and continuity, insurer relationships and pricing.

Clients should be mindful of these key themes as they assess their renewals:

1. Underwriting Rigor: Insurers offering Cyber and E&O insurance continue to require the use of technology solutions and processes, which they typically perceive will improve the client’s security posture and can help mitigate the financial consequences of cyber events. Many Aon clients are focusing on and helping to improve their cyber resilience, while creating efficiency in the underwriting process, through the use of CyQu, Aon’s self-assessment tool. More than 4,000 clients have completed the assessment since its launch, with the ability to demonstrate year-on-year progress in security posture.
2. Capacity: New carriers are entering the E&O/Cyber insurance market, leading to roughly $50 million in new excess capacity. Insurers, especially those with a strong historical market presence, are starting to strategically turn back capacity management restrictions, further expanding available market capacity. This can be exceedingly beneficial to large market cap clients seeking to maintain or expand insurance program limits. Many middle market clients are also benefiting from less strict capacity management guidelines, which when paired with growth in the market share obtained by MGA's that recently entered the space, is presenting a more competitive buyer’s market.
3. Coverage: Coverage continues to be reviewed, most specifically in four categories: 1) war exclusions, 2) territory restrictions, 3) systemic risk, and 4) ancillary coverages such as media and cyber crime or theft. The conflict in Ukraine is commonly top of mind for insurers, both with how they amend the risk to any given business, and how the global response to those events may impact insurer compliance. Potential systemic or supply chain risks related to the conflict have fueled insurers’ aggregation risk concerns.  Aon expects continued review and adjustment of available coverage as insurers manage these risks.

Within this context, the E&O/Cyber market appears to be shifting to a more buyer-friendly environment compared to 2021. Businesses with mature, best-in-class cyber risk profiles may experience greater opportunity to pursue options in the market as the pricing environment improves.

Loss Trends

Frequency and severity for errors and omissions and media liability claims remained rather constant through the first half of 2022. By contrast Aon data shows cyber claims frequency declined quarter-over-quarter, driving favorable adjustments loss ratios through the first half of 2022.

Cyber Incident Rates Over the Past Thirteen Quarters

Pricing Trends

Aon pricing data is analyzed historically and examines the year-over-year price change on a monthly or quarterly basis. This analysis highlights trends. We also feel it’s important to add context that there are industry sectors and client segments that are experiencing far greater pricing disruption. Rate increases are quickly decelerating, with potential for reductions in certain industry sectors or for clients with improved risk profiles. As competition re-enters the market via expanded available capacity and improving insurer loss performance, we anticipate opportunities to drive favorable pricing and other results based on client priorities will continue to develop

2021/2022 E&O and Cyber Monthly Pricing Primary and First Excess

Average Year-over-Year Change (Same Client)

2020-2022 Cyber Premium Changes by Quarter

Average Year-over-Year Change (Same Client)

Disclaimer: All descriptions, summaries or highlights of coverage are for general information purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy

If you have questions about your specific coverage, or are interested in obtaining coverage, please contact your Aon broker.

Aon's Cyber Solutions and Stroz Friedberg, LLC, an Aon company, has provided the information contained in this report in good faith and for general informational purposes only. The information provided does not replace the advice of legal counsel or a cyber insurance expert and should not be relied upon for any such purpose.

Insurance products and services are offered by Aon Risk Insurance Services West, Inc., Aon Risk Services Central, Inc., Aon Risk Services Northeast, Inc., Aon Risk Services Southwest, Inc., and Aon Risk Services, Inc. of Florida, and their licensed affiliates.