The role of identity theft insurance as a supplemental product could evolve as personal cyber risks become more of a threat as technology proliferates further into individuals’ lives, according to a new A.M. Best report.
In its current form, identity theft insurance is offered predominantly on a packaged basis, with nearly 21 million in-force policies in 2018. Despite the low premium base, this line of business has reported profitable results on a direct basis, states the new Best’s Special Report, “Identity Theft Coverage Continues to Evolve.”
Standalone policies have constituted just over 1% of all policies in recent years, but have accounted for at least 80% of all incurred claims over the last four years. According to the report, the main reason for this trend is individuals being more aware of the risk, having had their identities stolen in the past or may be engaging in behavior that makes them more vulnerable to identity theft.
More than half of standalone writers did not record a loss ratio in 2018, yet a single company drove the high standalone paid loss ratio of 153% for the year. Overall, loss severity is constrained by the relatively low limits offered in identity theft extensions. Although losses suffered by any single policyholder may be significant, identity theft insurance is not an insurance line subject to shock losses or catastrophe events other than massive data breaches. However, accurately analyzing the profitability of identity theft insurance can be difficult when the costs for a policy can go beyond claims and related payments (e.g., identity restoration services, credit monitoring), the authors note.
The accelerating pace of innovation has made the personal lines market more connected than ever with Internet of Things devices and sensors in homes, in addition to the rising use of wireless and Internet for communications and transactions. A.M. Best said it expects the current version of the ID theft product to evolve into a personal cyber product that may cover risks such as hacking into IoT devices and personal laptops, as well as for liability coverage for emerging trends such as cyber-bullying. Indeed, some of the insurance policies that cater to the high-net-worth homeowners market offer personal cyber coverage, including identity theft, via endorsement for their policyholders, for incidents including fraud or theft of funds, such as unauthorized wire transfers. Other features may follow with the increase in demand and awareness.
Source: Best’s Special Report
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