Energy company demand for cyber insurance has skyrocketed globally in recent months as firms worth billions of dollars find themselves at the top of hacker target lists, a Gallagher report says.

The Global Energy Insurance Market Update says energy and utility companies are vulnerable to exploitation given their large geographic spread, organisational complexity and interdependencies between physical and cyber infrastructure.

“Companies are growing faster and expanding their reach further, and Covid-19 has accelerated the need to digitise sooner,” the report says. “It means they’ve left themselves much more exposed to cyber threats, which have increased in both severity and frequency.”

Insurers have been ramping up their rates by as much as 25-40% in response to a surge in claims caused by recent ransomware attacks, and prices are expected to climb further as loss ratios are increasing year-on-year.

Underwriters have been increasing their scrutiny of risks, pulling back on coverage and capacity, and inserting sub limits and exclusions into policies.

The report says the overall energy sector insurance marketplace has “moderated somewhat” compared to the first half of last year, but forces such as inflation, property and business interruption value increases, the Russia/Ukraine conflict, and supply chain disruptions continue to present concerns for underwriters and insureds.

Upstream energy clients may see varying rate rises, determined by risk type, with businesses with large-scale assets and good loss records more likely to see some reductions, while increased capacity for midstream risks means rate rises are relatively low.

“We may be nearing the end of a hard market cycle for downstream risks, although underwriters are still focused on natural catastrophe exposures,” the report says.

Gallagher notes that January 1 saw the introduction of a new Lloyd’s directive calling for an end to underwriting new coal business.

“We have since seen a subtle change of emphasis, with each syndicate now taking responsibility for its stance toward new coal business,” it says.

“Many have chosen not to put any new coal accounts on their books - in some cases this was already their policy. But others have adopted a policy of accepting new business in cases where a client can prove it has a clear approach to working toward an orderly transition to renewable energy.”

In renewables, a market adjustment from mid 2019 to January 2020 that saw significant rate and deductible increases has stabilised, with this year offering a more consistent approach to renewals and new or boosted capacity supporting competition.

“Renewable underwriters assessing individual risks are tending to focus above all on performance and perceived natural catastrophe exposures,” it says. “Insurers’ expectations for renewals are generally between flat and 10%, with rate reductions now being achieved in certain circumstances.”