Cyber Insurance Supply and Performance: An Analysis of the U.S. Cyber Insurance Market

55 Pages Posted: 25 Aug 2019

See all articles by Xiaoying Xie

Xiaoying Xie

California State University, Fullerton

Charles Lee

Columbia University, Students

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Date Written: March 18, 2019

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, are in line with the coordinated risk management hypothesis, but only partially support the business growth constraint hypothesis. We find that insurers offer cyber insurance to capitalize on their competitive advantage in understanding and pricing cyber risks and to balance their risks between investment and underwriting. We find limited evidence that insurers participate in cyber insurance to compensate for constraints on business growth. In addition, the type of coverage offered (standalone or packaged) and the 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, emphasizing the significance of cyber insurance policy design.

Keywords: cyber risk, cyber insurance, surplus lines, property-casualty insurance

JEL Classification: G22, G32

Suggested Citation

Xie, Xiaoying and Lee, Charles and Eling, Martin, Cyber Insurance Supply and Performance: An Analysis of the U.S. Cyber Insurance Market (March 18, 2019). Available at SSRN: https://ssrn.com/abstract=3440919 or http://dx.doi.org/10.2139/ssrn.3440919

Xiaoying Xie (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Charles Lee

Columbia University, Students ( email )

New York, NY
United States

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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