Inflation has long been recognized as a significant factor impacting various lines of property and casualty (P&C) insurance. This report aims to investigate the extent to which inflation affects cyber insurance, and if it does not, to provide a comprehensive understanding of the drivers that influence cyber trends. Through a quantitative analysis of cyber severities against established inflationary metrics, we will explore the prevailing notion that the cost of cyber claims is not heavily sensitive to economic inflation, setting the stage for further investigation into alternative factors influencing claims trends.
Key takeaways
- Traditional economic inflation appears to be a weaker explanatory factor for rising cyber claim severity. Compared with property lines, such as dwelling in homeowners, cyber severities show materially lower correlation with headline inflation, core inflation, and wage-index measures.
- Social inflation is emerging to some extent in cyber, particularly in third-party and class-action claims. There is a growing concentration of these claims among small and medium-sized enterprises (SMEs), pointing to a notable shift in where loss activity is occurring.
- The lucrative nature of smaller data breach cases appears to be drawing greater attention from law firms. This dynamic may be contributing to the rise in third-party claims, particularly among smaller insureds.
- The cyber risk landscape remains highly complex and requires both quantitative and qualitative judgment. Technology developments, AI, geopolitics, threat actor sophistication, and regulatory change all influence claims trends in ways that historical data may not fully capture.
- Technology-driven measures, such as the Internet of Things (IoT) connections, global internet users, and mobile subscriptions, show stronger correlation with cyber claim costs than traditional inflation metrics do.