An Empirical Analysis of Insurer Participation in the U.S. Cyber Insurance Market

Abstract

The U.S. property-casualty insurance industry has witnessed substantial growth in the cyber insurance market over the past decade, largely attributable to the proliferation of technology in the business world paired with the greater occurrence of cyber-related loss activity. While cyber insurance plays an increasingly important role both in the insurance industry and in the worldwide economy, relatively little is known about participation and performance in the cyber insurance market. Using a unique panel dataset made available through recent mandatory disclosures, we examine market trends, factors associated with market participation, and firm-specific characteristics related to performance. Among our findings, the results indicate that the cyber insurance market is highly concentrated and that firm-specific characteristics such as size, business mix, reinsurance, and organizational structure tend to impact both participation and the extent of participation in the market. Furthermore, we show that classification as an excess and surplus (E&S) lines insurer and group affiliation are particularly significant drivers of cyber market involvement. Finally, we offer evidence that while cyber insurance is a profitable line of business for market participants, factors such as insurer size, reinsurance use, diversification, group affiliation, organizational structure, and status as an E&S insurer each influence performance in different and important ways.