Cyber risk insurance is one of the latest and fastest growing insurance policy in the insurance industry, as many companies seek to mitigate the risks of losses to various cyber security threats. This article takes a look at the definition of cyber risk insurance, its importance, and other key things a company needs to know about this latest trend in the insurance industry.
The Rise of Cyber Risk Insurance
As the digitalisation continues to evolve world, ransomware, malware attacks, and data breaches are on the rise. According to current statistics, only 3% of companies can boast of an excellent cyber security architecture strong enough to resist attacks, while nearly 75% of decision-makers on cyber risk around the world have experienced at least one cyberattack in the last twelve months.
With the average ransom payment pegged at $211,529, more businesses are beginning to invest in cyber risk insurance to safeguard themselves from potential loses as ransomware attacks, malware attacks, data, and cybersecurity breaches are usually excluded from standard insurance coverage. In response, cyber risk insurance providers are raising premiums and becoming ever pickier about the businesses they are willing to cover.
Recent projections revealed that the cyber risk insurance market is anticipated to grow to $20.6 billion by 2025, $7 billion more than in 2020. The market is flourishing as a result of the recent surge in cyberattacks, as cyberattacks rose by 50% in 2021 compared to 2020, far exceeding what businesses or insurance had planned or budgeted for. In addition, cybercrime is expected to result in $10.5 trillion loses per year by 2025.
Overview Of Cyber Risk Insurance
Cyber risk insurance, commonly referred to as cyber insurance, plays a key role in helping companies lower the financial risks associated with conducting business online. With cyber risk insurance, a percentage of the risk is transferred to the insurer by the insurance policy in exchange for a monthly or quarterly fee known as "premium."
A cyber risk insurance helps to reduce the financial risk exposure of an organisation by balancing expenses for damages and recovery following a data breach, ransomware attack, or other cybersecurity attack. It can protect a company against forensics expenses, compliance fines, court cases, and even extortion payments.
Cyber insurance often covers hazards caused by people. Usually, this entails paying for both first-party (the policyholder) and third-party expenses.
Ransomware and data breaches are the two main covered areas.
However, other areas include:
- reimbursement for expenditures and legal fees.
- customer alerts in the event of a breach.
- fees associated with recovering compromised data.
- costs associated with restoring broken computer systems.
Things that cyber insurance does not cover:
- pre-existing or prior breaches or cyber events, such as incidents that occurred before the policy was purchased,
- cyber events initiated and caused by employees or insiders.
- infrastructure failures not caused by a purposeful cyber-attack.
- failure to correct a known vulnerability, such as a company that knows that a vulnerability exists, fails to address it, and is then compromised from that vulnerability.
- the cost to improve technology systems, including security hardening in systems or applications.
Why Cyber Risk Insurance Is a Necessity for Companies
The importance of cyber risk insurance for companies cannot be overstated. Hence the following are key reasons it is necessary for companies to get cyber risk insurance.
Offers protection against cyber extortion
Ransomware and similar harmful software are created to steal and withhold important information from companies. Companies must consider cyber risk insurance, which helps to recover losses from cyber extortion, as the rates of ransomware attacks continue to spread.
Compensation for business interruption losses
A cyberattack might result in an IT malfunction that disrupts business operations and costs organisation money and time. A company's loss of income is also covered by cyber risk insurance and additional costs for running the business in the wake of a cyberattack is also covered.
Coverage for general legal liability
Records are frequently far more valuable than physical assets, therefore it is crucial to have the right security in place when you need it. In most cases, general liability insurance does not protect businesses from data loss, hence, adding cyber risk insurance to a current coverage gives companies peace of mind that if a cyber-attack occurs, the company’s financial stability will be protected.
Seeking legal counsel after a cyber-attack may be expensive, which is why many companies do not see legal advice in the event of cyberattacks. This is another area where cyber risk insurance is valuable as it offers financial protection so companies can easily pay for the best legal counsel available.
Protection against data breach
Data breaches usually result in high costs for a company, particularly in relation to security updates, protection against identity theft for anyone affected by the breach, and defence against felony charges. Cyber risk insurance protects a company against such exposures, helping to protect your information from attackers and expenses that may arise in the case of a breach.
The coverage offered by different providers will differ greatly because cybersecurity insurance is still relatively new. When selecting a policy, companies should carefully evaluate the policy's terms to make sure it has the required protections and restrictions. Companies should also assess if policies offer defence against well-known and newly emerging threat profiles and cyber events.