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Cyber insurance offering and performance: an analysis of the U.S. cyber insurance market

Xiaoying Xie (), Charles Lee () and Martin Eling ()
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Xiaoying Xie: California State University
Charles Lee: Columbia University
Martin Eling: University of St. Gallen

The Geneva Papers on Risk and Insurance - Issues and Practice, 2020, vol. 45, issue 4, No 7, 690-736

Abstract: 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, but only partially support the business growth constraint hypothesis. We find that insurers offer cyber insurance to capitalise on their competitive advantage in understanding and pricing cyber risks. In particular, professional surplus insurers and insurers with surplus insurer affiliation demonstrate a competitive advantage in cyber insurance participation. We find limited evidence that insurers participate in cyber insurance to compensate for constraints on business growth. In addition, the type (standalone or packaged) and 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, emphasising the significance of cyber insurance policy design.

Keywords: Cyber risk; Cyber insurance; Surplus lines; Property-casualty insurance (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s41288-020-00176-5

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