What AM Best Says
AM Best: Growing Interest in Identity Theft Coverage Compels Insurers to Evolve

• John Weber
• September 2021
• 

Identity theft insurance is fast becoming a must-have option as digital transactions, cloud storage and the online exchange of information become more common due to the COVID-19 pandemic.

The increased exposure is driving the need for insurers to evolve and re-evaluate their policies and coverages.

Following is an edited transcript of an interview with AM Best Associate Director David Blades and Associate Analyst Lauren Magro.

What's fueling this growing industry interest in personal ID and theft in coverage?

Magro: Primarily fueling this growing interest in the personal identity theft coverage is that increased exposure to the digital world, as you mentioned. That has definitely been exacerbated by the pandemic.

When stay-at-home orders were first implemented in addition to travel restrictions, an enormous amount of communications, transactions, they were all transferred onto online platforms. Most of them still remain there to this day.

That, coupled with both the frequency and the severity of personal cyber crimes in our world today becoming more prevalent, users are more susceptible to the risk.

How are insurers currently providing the coverage?

Magro: Insurers differ slightly in how they're currently providing the coverage, whether that be a standalone policy or a package policy. Many insurers that do offer it as a package policy offer the identity theft coverage as a part of either a homeowners, a condo's or renters' insurance for an additional cost, while others may offer a lower limit of coverage for no additional cost.

Given that increased interest in identity theft coverage, we could definitely see further developments in the future in terms of how the coverage is offered.

How profitable is this line of coverage?

Blades: Profitability for this line of insurance is somewhat difficult to pinpoint. Some of that picks up on what Lauren said, in terms of the way that different companies provide the coverage. Some, as she said, provide it as part of a package policy, so again, it can be difficult to identify, from a premium and law standpoint.

To this point, based on the data that is available, writing ID theft insurance has been profitable in the aggregate. I do have to mention that loss sensitivity is somewhat elevated due to the low premium base for the coverage and the potential volatility, in terms of the severity of losses that can happen, again, when you're dealing with a low premium base.

The profitability could be volatile. From that standpoint, based on what we've seen to this point, the coverage is basically profitable.

One thing that helps that profitability when you think about it is the intrinsic diversification of this line of coverage, given the large policyholder base when you're talking about, obviously, personal identification and all the people, obviously, that need the coverage.

From that standpoint, that helps, in terms of the profitability in the aggregate. Another inherent factor that helps ID theft from a profitability standpoint is if you look at it, when a business is hacked and an individual's personal information is compromised, it's the insurance company for the business that is responsible for monitoring, and mitigating, and handling the claim.

From that standpoint, for those exposures, that's covered on the business's coverage. Again, from that perspective, that somewhat mitigates the loss activity that you do see on the personal ID line.

What kind of opportunities might exist for insurers as we move forward?

Blades: There are great opportunities for those insurers that come to the plate with products that can deal with the fact that we have moved into a highly digitized environment, much more so than in the past. There's greater awareness for the security that's needed for personal cyber and ID theft protection.

The companies that can develop the products that keep pace with the increasing number of threats that are faced, with regards to cyber liability and personal cyber liability—those companies will prove their mettle over time and they'll be the most valuable companies from the standpoint of this marketplace.

The other thing is companies that can help offer value-added services to their clients so it helps them, from a loss control standpoint of being more aware of things on a proactive basis, in terms of how to protect themselves.

What kind of safeguards, and what kind of protections they need to put in place, how they need to help, from their own standpoint, protect their information—that's going to be even more valuable.

For the insurers that prove themselves in the marketplace, not only in bringing the products, but in also providing those value-added services, that's where those companies will be able to differentiate themselves and separate themselves from other competitors. That'll reflect in their premium writings as we go forward.