Why It May Be a Good Time to “Top Off” Cyber and D&O Limits

When cyber and D&O insurance premiums soared, businesses may have felt it necessary to reduce coverage. Now, rates have declined, so it may be a good time to “top off” your cyber and D&O limits – especially because, unlike premiums, risks are not falling.

Cyber and D&O Premium Trends

Both cyber and D&O insurance have seen substantial swings in recent years.

Cyber insurance premiums skyrocketed between 2020 and 2022. According to CIAB, rates were up 34.3% in the fourth quarter of 2021. After that, rate hikes began to moderate, although double-digit increases were still the norm for a while. By the second half of 2023, rate hikes were only up 3.6%. In the second quarter of 2024, CIAB says rates were actually down 1.7%.

D&O insurance has shown a similar pattern. Rate increases started to climb around 2019 and 2020. CIAB says D&O insurance rates were up 16.8% in the second quarter of 2020 and 16.1% in the third quarter. However, the hard market did not last forever. In the second quarter of 2024, D&O premiums were down 1.0%.

Falling Rates Won’t Last Forever

Don’t take falling rates for granted. Although rates are down now, this trend could reverse in the near future.

According to CIAB, competition has helped keep cyber insurance rates down. Likewise, increased capacity has helped D&O insurance prices to moderate. These market conditions are great for policyholders, but they won’t last forever.

Claims are still high and loss trends are troubling. For example, ransomware attacks have increased in both frequency and severity – a 2024 report from Black Kite shows that ransomware attacks nearly doubled in 2023 compared to 2022, whereas Chainalysis says ransomware payments surged to a new record high in excess of $1 billion in 2023.

To explain the increase, the World Economic Forum points to advances in AI as well as an increase in mobile connected devices. As AI tools become more sophisticated and easier to obtain over the next two years, the National Cyber Security Centre warns that global ransomware attacks are likely to increase.

D&O risks are also a looming threat. Board members may face lawsuits over cyberattacks as well as many other hot-topic issues, including controversial DEI and environmental strategies. When lawsuits occur, they may be increasingly expensive thanks to social inflation and nuclear verdicts.

According to Business Insurance, securities class-action activity also rose in 2023. Experts predict that D&O rates will stabilize as increases in securities class-action filings and claims offset the increased capacity. Fitch Ratings has gone so far as to call the D&O insurance profit levels of the first half of 2023 unsustainable in light of pricing.

Should You Increase Your D&O and Cyber Limits?

By increasing limits now, you can take advantage of lower insurance costs, while also protecting your business against rising risks.

A D&O or cyber event could cost more expensive than you expect. For example, according to IBM, the average cost of a data breach surged by 10% in 2024, reaching $4.88 million.

To determine if you should increase cyber or D&O coverage levels, discuss these questions with your Heffernan insurance advisor:

• Did you previously settle for lower limits than you would have liked? When capacity was limited and rates were high, some businesses may have accepted limits that were not ideal. Now is a good time to shore up coverage levels.
• Does your business have adequate protection? As liability and cyber losses increase, it may be hard to say how much insurance is enough. However, by looking at recent verdicts in your industry, you can establish ballpark exposure ranges.
• Have your exposures grown or evolved? As businesses grow, and their product/service offerings evolve, so do their exposures. Discuss your current insurance profile with your agent.

Heffernan Insurance Brokers can help you assess your insurance needs to determine whether higher D&O and cyber limits make sense, and our team can help you negotiate an optimal insurance package. Contact us.