The Future of Cyber Insurance

July 12, 2023

The future of cyber insurance remains uncertain. As the risk increases, insurers must take proactive steps to guarantee they continue providing policies that help businesses recover from attacks.

To achieve this, they must enhance cyber risk models and implement more stringent cybersecurity standards. Doing this will enable them to prevent catastrophic cyber events from ever occurring in the first place.

Preventative Measures

Cyber insurance policies can shield businesses against the financial costs of cyberattacks. They also minimize data loss, business interruption and costs associated with restoring or replacing stolen data.

Companies who take preventative measures to lower the likelihood of a breach are more likely to qualify for better premium rates than those who don’t. One way to demonstrate your readiness is by having an automated breach response system in place, where a cybersecurity professional can detect and stop an attack before it’s too late.

Other ways to protect against cyber insurance losses involve adopting best practices in cybersecurity and regularly scanning your systems for vulnerabilities that hackers could exploit. For instance, having all passwords stored securely within a business password manager makes it much harder for malicious actors to break into your network.

Similarly, an automated security incident response process can drastically reduce the time it takes to contain and remediate an attack after it’s been identified. These proactive steps not only help mitigate financial loss due to cyberattacks, but they also enhance your company’s reputation in the process.

It’s essential to recognize that a good cyber policy isn’t an insurance solution for every situation. While it may provide considerable support in the event of a major cyberattack, it cannot fully reimburse for lost revenues or other indirect losses caused by such an incident.

Therefore, having a comprehensive plan that incorporates both cyber liability coverage and risk mitigation strategies is essential. These should be seen as complimentary components of any company’s overall cybersecurity strategy, but they’re also vital in any effective response to an incident.

Companies should also be mindful of any state laws or regulations requiring them to notify customers after a data breach. Notifying affected parties can be expensive, but having an adequate insurance policy in place can help cover the necessary steps and fines if there is a breach.

Additionally, working with a trusted consultant who has the necessary expertise to assess your business’ unique risks and recommend the appropriate cyber insurance coverage is beneficial. Receiving accurate advice now can save time, money and hassle in the future.

Reinsurance Capacity

Many are worried about the future of cyber insurance. With an increase in both frequency and severity of attacks, reinsurance capacity becomes even more essential in mitigating losses to which businesses may be vulnerable.

S&P noted that in the past, major reinsurers provided much of the cyber market’s capacity. But this dependence is now coming under strain as more smaller firms enter the space, increase insurance limits cautiously or offer additional cyber products, thus increasing competition within this space.

Recent S&P report indicates that while demand for cyber reinsurance is on the rise, lack of capacity has kept prices down. Some writers have been forced to reduce or limit their premiums due to capacity restrictions.

According to S&P, primary insurers pass between 35 percent and 45 percent of their cyber risk onto reinsurance companies through quota shares and general reinsurance arrangements. As a result, the report noted that market concentration is disproportionately high when compared with other classes of businesses.

S&P noted that cyber’s dependence on reinsurance has driven its market share to approximately 10%, but they forecast this figure will climb to 24% by 2025.

Reinsurance capacity can be enhanced through two methods: reinsurers gaining a better grasp on the risks they underwrite and improving modeling for cyber loss claims, according to S&P. First, actuaries and other technical professionals should be able to more accurately model potential accumulation of cyber loss events. Doing this increases confidence in aggregation processes as well as supports more complex reinsurance structures.

Second, re/insurers should update policy language to clearly state what their coverage includes and excludes. Doing this will guarantee all stakeholders – including cyber insureds – understand exactly what they’re purchasing.

Finally, the re/insurance market can benefit from more competition from new and alternative providers. This may prompt re/insurers to increase their appetite for cyber risks in line with their underwriting strategies, potentially leading to the creation of new insurance-linked securities (ILS) transactions.

Insurers’ Requirements

When applying for cyber insurance, insurers will want to understand your organization’s security practices. This includes who is accountable for cybersecurity, what valuable data you store and if you have an effective system in place to guard against potential threats.

Insurers will also want to know how you protect sensitive information and ensure regulatory adherence. It is essential that this information be disclosed on your application, as a company with an established history of upholding strong data security standards may be more attractive to insurers than one that isn’t.

Another crucial consideration is the nature of your organization’s assets. Insurers typically require information about your network, systems and devices that store personally identifiable information (PII) or patient health information (PHI), including how these items are stored and accessible.

Many insurers take into account a company’s history of cyberattacks, especially if your business has had an extensive security breach.

Additionally, it’s wise to reach out to your insurer with any new or ongoing cyber protection initiatives. Doing so will enable them to better comprehend your requirements and provide you with the most suitable coverage.

Cyber insurance coverage can be pricey, so it’s essential to shop around for the best deal. This is especially true if your business is small with limited revenue or a large enterprise with lots of data at risk.

Before signing a cyber insurance coverage agreement, it’s essential to review its exclusions and conditions. Most policies exclude coverage for attacks that occurred prior to the policy start date; this can pose a major problem when viruses or malware have been introduced into a computer system but not detected until months or years later.

In addition to these specific exclusions, there are other considerations that need to be taken into account. One such exception pertains to terrorism, which could pose problems if your company becomes targeted by a foreign government.

The Future

Cyber insurance is a relatively new insurance product, with many unknowns in its landscape. While data on past cyber attacks and loss rates exists, actuarial information cannot reliably predict future risks; thus, there exists an enormous uncertainty gap between current market pricing models and what insurers are willing to pay for cyber coverage today.

Cyber insurance policies were initially created to shield information technology companies from liability for cyberattacks and data breaches on systems they managed, often used by other businesses or consumers. But over time the market has broadened to encompass a wider variety of businesses and industries.

Insurers are increasingly rating cyber risk according to an organisation’s size and sophistication, as well as its capacity for proactive protection from any cybersecurity incident or attack. For instance, larger businesses possess more data and revenue to safeguard, making them considered higher risks than small firms with fewer employees.

Additionally, a company’s location and other factors influence the cost of cyber insurance. For instance, businesses located in remote areas or those vulnerable to natural disasters typically have lower policy premiums than those situated in more urbanized areas.

Furthermore, the size of a company’s annual revenue determines its risk level. Therefore, smaller enterprises tend to have lower costs since they have less data and revenue to protect.

No matter the uncertainties that face the cyber insurance market, it’s essential for MSPs and SMBs to remember that there are solutions available for them when it comes to creating a robust cybersecurity policy. These include service guarantees which provide warranty coverage for MSPs and SMBs who proactively demonstrate they are adhering to their policies’ security requirements.

Another viable option is cyber insurance, which prioritizes preventing incidents rather than paying out claims. This approach can assist MSPs and small-to-medium-sized enterprises (SMBs) in focusing their efforts on avoiding breaches and mitigating the damage from cyberattacks.

In the future, insurers will require businesses seeking cyber insurance to identify and verify their key risk factors as well as details on specific security controls in place. They may even demand attestations of certain cyber security practices like multi-factor authentication or endpoint detection and response (EDR) capabilities. This makes the claims process more intricate, necessitating much higher documentation than is currently standard practice.

Ammar Fakhruddin

ABOUT AUTHOR

Ammar brings in 18 years of experience in strategic solutions and product development in Public Sector, Oil & Gas and Healthcare organizations. He loves solving complex real world business and data problems by bringing in leading-edge solutions that are cost effective, improve customer and employee experience. At Propelex he focuses on helping businesses achieve digital excellence using Smart Data & Cybersecurity solutions.


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