Cyber risk may be the fastest growing segment in property/casualty insurance, but carriers should be measured about boosting their presence in the space, Fitch Ratings warned in a new report.

Why go slow? Fitch argues that rapid expansion in cyber risks is creating problems with insurers’ bottom lines and credit ratings. Meanwhile, the segment already had $3 billion in 2015 premiums and will triple in 4 years.

“At this stage, Fitch would view aggressive growth in stand-alone cyber coverage, or movement to high portfolio concentration in cyber, as negative to the ratings,” the ratings entity said. “We believe the underwriting, pricing and reserving uncertainties, currently outweigh the potential earnings growth benefits.”

Instead, Fitch said, insurers should pursue controlled growth in cyber as part of a diversified portfolio and also focus on regularly boosting their underwriting standards as they do so. This would “generally be neutral to ratings,” Fitch noted.

James Auden, managing director at Fitch and a report co-author, said that cyber-related risks can come from multiple sources and defy traditional modeling and planning.

“Cyber risks are a broad peril affecting organizations of all sizes and in all market sectors,” Auden said in prepared remarks. “Insurance losses can materialize from several existing products including standard commercial liability, property, business interruption and professional liability and potentially several unforeseen product lines.”

Auden added: “Determining loss exposures from a cyber catastrophe is difficult as it requires an assessment of events that are feared but not yet experienced in reality.”

What that means, in other words, is Fitch counsels insurers to be both patient, and careful.

“Insurers’ ability to monitor and evaluate cyber risks will continue to evolve in the short term, opening up new opportunities to meet growing customer demand,” the Fitch report states.

Fitch notes, for example, that market limits are increasing, and cites Marsh & McLennan Companies data showing large companies (with revenue above $1 billion) purchased 22 percent higher cyber insurance limits, on average, during 2014. According to Fitch, financial institutions are purchasing the highest limits, and education is buying the lowest limits.

Ready or not, the market is growing rapidly. More Marsh & McLennan data cited by Fitch estimated that the $2 billion in global premium for cyber insurance generated in 2014 could “multiply by a magnitude of three to five times by 2020.”

Fitch said that 50 insurance carriers now offer some form of stand-alone cyber insurance coverage, even as cyber risks continue to worsen and rapidly evolve.

The Fitch report is entitled: “Global Cyber Insurance Update: Expanding Threats Amplify Underwriting Opportunity, Loss Potential.”

Source: Fitch Ratings