Best's Special Report: Standalone Identity Theft Insurance Soars as Personal Cyber Coverage Becomes More Essential

Although identity theft insurance is sold predominantly as part of a package with other coverage types, the market has seen a significant increase in standalone policies, to 2.3 million in 2021 from just over 300,000 in 2020, according to a new AM Best report.

In its Best's Market Segment Report, "ID Theft and Personal Cyber Coverage Becoming Essential," AM Best states that the increase is likely due to the rising awareness and severity of ID theft, particularly as the risk has grown significantly the past few years. "Due to the COVID-19 pandemic, most people increased their usage of digital technology and the internet during the COVID-19 pandemic. Consequently, cyber risk is starting to make more of a mark on the personal lines side," said Helen Andersen, industry analyst, AM Best.

ID theft risk is specific to stolen personal information, whether in the form of medical insurance theft, driver's license theft, social security theft or criminal ID theft. The coverage often is included as part of a homeowners insurance policy. Despite a smaller policy count on the standalone side, these policies historically have covered a majority of ID theft claims, most likely because an individual purchasing standalone coverage may have had a higher exposure to the risk. However, the number of claims from package policies skyrocketed in 2019-2020, reaching 64,375 in 2020 before plummeting to 3,000 in 2021. At the same time, standalone policy claims spiked in 2021, to 11,583 from approximately 3,000 in 2020.

The ID theft line of business remains profitable despite growing concerns. Standalone paid loss ratios vary, although large losses in the past four years have been concentrated among just a few companies. Loss sensitivity for this line of coverage is particularly elevated on the standalone side because of the low premium base and some volatility in the losses incurred. Packaged ID theft coverage remains profitable, but the increase in loss ratios, in conjunction with premium growth during the four years, may be a cause for caution going forward. As a business line, ID theft generally does not deal with huge shock losses, although major data breaches have been occurring with greater frequency.

ID theft fraud can be difficult to track, especially for those that have no idea how the hacking occurred. As awareness and the need for ID theft coverage builds, insurers who charge can capitalize on premium growth. "Insurers that adapt to this environment and provide more-detailed coverage ultimately will remain relevant in the market, improve relations with customers and agents and likely grow premium," said Andersen.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=325357.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.