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Cyber Risk: Opportunities and Threats for Insurers

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Uptake for cyber insurance has been challenging, according to the brokers I know who specialize in the product. However, recent reports say that this is turning  around, and it seems rates and premiums are rising as well. Question: Can the industry respond to turn these into opportunities?

The turning tide

According to a recent Wells Fargo study of 100 US middle-market  and large companies, 85% say they have purchased cyber security and data privacy insurance coverage to protect against financial loss.

One problem in the past for cyber sellers was getting the attention of senior business executives. In the Well Fargo study, in 43% of the cases, the CEO was the decision-maker.

Sounds like good news, yes?

More good news?

A recent report notes that premiums and rate are rising for the products.  Unfortunately, the reasons show how a two-edged sword can cut.

The video report from Reuters notes that the premium rise is the result of increasing successful hacks against retail and healthcare. Bob Parish from Marsh says,  “For a relatively immature market, as cyber is, having several hundred million dollar losses is going to have an impact.”

Substantiating this, the Well Fargo survey shows that 44% of companies which took cyber cover had already filed a claim.

These are teething pains, yes?

Cyber risk is new for insurers as well as insureds.  As with other new things, we would expect that experience will allow insurers to fine-tune underwriting, rating and risk management to allow competitive pricing.

To this end, insurers are partnering with technology companies to help understand and mitigate exposures and losses.  Unfortunately, it is hard to do this dance on shifting sands.

Insurers are finding that the cyber-risk world is dynamic just as the pace of cyber exposure is increasing.  A recent Gartner analysis projects 20.8 billion installed Internet of Things (IoT ) units, up from 4.9 billion this year.

If we are having challenges responding with comprehensive products now, what will happen when it is several orders of magnitude more complex?

So what will happen?

The insurance industry is responding to help businesses and individuals mitigate losses in using digital tools for business or home activities.  The question is:  can the insurance industry respond quickly and effectively.

In November 2014, the UK government issued a press release on the role insurance will play, writing, “The Government believes cyber insurance has a strong role to play in helping firms outside of the critical national infrastructure to manage their cyber risks efficiently.”

This provides opportunity and risk for the industry.  If insureds are not satisfied with the product from the insurance industry, they will seek it elsewhere.

We have faced this in the past, but not with the compressed time frames being driven by digital commerce.

What do you think?

Do we have the wherewithal to respond to the demands of government, business and end consumers?  I would welcome your comments below.

 

Editor’s note: The 2016 Insurance-Canada.ca Technology Conference theme is The Two-Edge sword of Technology.  We will focus on how technology use can have many results, some expected, others not.  The many impacts of cyber risk and insurance is one example. 

 

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