Where is Canada’s cyber insurance market heading?

Although the Canadian cyber insurance market recently turned the corner into profitability, cyber insurers may be waiting for the other shoe to drop, Aon suggests in its Fall 2025 Canadian Insurance Market Update report.

“Abundant and alternative capacity throughout North America contributed to a favourable January 2025 cyber reinsurance cycle, reinforcing the buyer-friendly conditions currently seen in the Canadian marketplace,” Aon says in the report, released Monday. “Despite these positive developments, such as rate reductions and broader coverage, persistent loss activity and increasing claims amounts suggest these conditions may not be sustainable in the long term.”

However, organizations that invest in robust cyber hygiene and accurately reflect these efforts in their underwriting applications are best positioned to secure comprehensive and affordable coverage, regardless of future market shifts, Aon reports. Likewise, while businesses currently benefit from competitive rates, “challenges remain for those with material gaps in critical cybersecurity controls or distressed loss histories.”

Canada’s cyber insurance market has experienced significant volatility in recent years, with periods of rapid change followed by brief stabilization, Aon says.

Canadian Underwriter previously reported that in the early days of the COVID-19 pandemic in 2020, the cyber loss ratio for Canada’s P&C industry, including Lloyd’s, reached 371.4%, according to data from MSA Research.

In 2022, the cyber loss ratio was -28.5%, attributable to reserves being pumped into the market. In 2023, under IFRS 17, the cyber gross insurance service ratio was 83.4% for the industry, including Lloyd’s. That fell to a healthy 38% with Lloyd’s in 2024 Q3.

“In 2024, the market saw accelerated softening, culminating in a notable average 15% decrease in rates year-over-year,” Aon says in the report. “This trend was driven by increased competition among insurers and abundant capacity, which has continued into 2025.”

Clients purchasing additional limits

Aon also reports that as insureds became more sophisticated, many began harnessing cyber modelling tools to inform their purchasing decisions, evaluate appropriate limit levels, and better protect their balance sheets. “Reflecting this shift, Aon observed that 25% of clients opted to purchase additional limits in 2024, demonstrating a growing emphasis on proactive risk management.”

Improvements in organizational security and privacy controls have positively impacted the frequency and severity of cyber losses, prompting insurers to reduce rating and retention requirements compared to the hard market conditions of 2020-2022. “Although some global markets, such as the U.S., are reaching equilibrium, Canada typically lags behind, suggesting that rate reductions may soon stabilize,” the report says.

Looking ahead, systemic and third-party risks remain under-managed and warrant increased attention, Aon warns. Companies are encouraged to strengthen vendor management processes and assess their total cyber risk exposure, particularly in relation to large-scale systemic events.

And risk differentiation is increasingly important for driving coverage enhancements, Aon says.

“Organizations with strong cybersecurity postures and established insurer relationships may access benefits such as long-term pricing agreements or rate guarantees, helping create program stability in volatile conditions,” the report says. “Collecting accurate and detailed underwriting information remains crucial for securing tailored coverage and achieving results beyond general market trends.”