In
today’s globally interconnected world, the rise of digital transformation has brought
with it unprecedented opportunities for businesses, governments, and
individuals alike. However, With increased reliance on digital technologies
comes a new and evolving challenge which is Cyber Risk. Technology
has revolutionized the world for businesses and individuals. The past twenty
years have seen monumental shifts in human behavior directly linked to
technological advancements. From the way we shop to the way we access bank
accounts and book holidays; everyday life has changed fundamentally.
So, what should we mean when we talk about Cyber Risk? What
do clients need to protect themselves against? The real answer is crime. Most cyberattacks are criminal acts
and so technically can be labeled as “cyber-crime”.
Cyber-crime encompasses a broad spectrum of threats that can impact businesses of all sizes. These threats include but not limited to data breaches (unauthorized access to confidential data), phishing attacks (deceptive attempts to obtain sensitive information), ransomware attacks (where attacker demanding payment to restore access), distributed denial of access of service attacks (causing service outages) & insider threats (security breaches originating from within the organization).
As
the frequency of cyber incidents and the associated costs continue to climb,
businesses need additional ways to minimize their Cyber Risk. No single
security control can prevent every incident, though Cyber Risk insurance or cyber liability insurance is a valuable risk mitigation tool. It provides
modern businesses a crucial shield against dynamic cyber threats. The coverage
offered by cyber insurance are first-party coverage where it covers
direct losses incurred by the policyholder, including data restoration,
business interruption costs, and cyber extortion payments. The additional coverage
offers liability claims from third parties affected by the
policyholder's cyber incident.
Small Businesses (SMBs) most affected market segment: Over the past several years, hackers
have turned cyber-crime into a thriving business. According to the Identity
Theft Resource Center, there were 2,116 data compromises as of September 2024 —
a 17% increase from the 1,802 in 2023. According to the FBI’s crime report,
SMBs face an increasingly and disproportionately challenging cybersecurity
environment. The cost of cyber-crimes for small businesses reached $2.4 billion
in 2023. This is where cyber insurance can help SMBs prepare for cyber threats
or events by helping them transfer the potential costs associated with a cyber
event to an insurer.
Challenges face by insurance companies: In these days, insurance companies all
over the world are facing challenges while insuring Cyber Risk. Some of the key
challenges are;
(1)
Evolving nature of cyber threats where new types of attacks emerging regularly.
(2)
Lack of historical data makes it challenging for insurers to develop reliable risk
models and predict future losses.
(3)
Quantifying the Cyber Risk is inherently difficult due to the intangible nature
of digital assets.
(4)
Aggregation of risk; A widespread malware attack that exploits a vulnerability
in commonly used software could impact numerous clients at once, resulting in
substantial aggregate claims.
(5)
Moral hazard arises when insured entities may not take adequate measures to
prevent cyber incidents because they are covered by insurance. In order to compensate
large number of losses, the insurance companies are seeking support from the
reinsurance market.
Role of reinsurance companies: Reinsurance plays a vital role in the
insurance industry by allowing insurance companies to manage their risk
exposure and enhance their capacity to underwrite policies. They help diversify
the risk portfolio of primary insurers, reducing the impact of a single large
loss event. Another benefit would be transferring part of the risk to re-insurers. It helps primary insurers maintaining their financial stability and
solvency when significant cyber claims occur. Furthermore, a re-insurer with a
strong background in cybersecurity can provide insights into emerging threats
and best practices for risk management, helping primary insurers improve their
own Cyber Risk assessment and mitigation efforts.
Role of brokers in cyber insurance market: In this digital age, the businesses need
robust cyber insurance cover. A broker can help businesses navigate the complex
policy exclusions, premium negotiations, and the submission process.
Experienced brokers can engage with multiple insurance markets domestically as
well as internationally and support their clients throughout the underwriting
process.
Associated Alliance along with one of its subsidiary Synergy
Reinsurance DMCC plays
a critical role as an intermediary between the businesses seeking coverage, the
direct insurance, and the reinsurance providers. Given the complexity of Cyber Risks and the highly specialized nature of cyber insurance policies, we serve
as valuable advisors and facilitators throughout the process by offering
services for risk assessment and evaluation, policy design and customization, claims management.
Recently,
we have placed policies with limits of liability ranging between USD 1,000,000 and
USD 20000,000 for companies operating in the Middle East and other companies
operating across the Middle East, Europe and North America. The policies were
placed on claims-made basis but we managed to arrange a retroactive date coverage
to cater for risks occurring before inception dates. Policies would range from first party cover to third part cover and clients would be different spectrum
of activities (technology, financial institutions, etc.). Our Cyber Risk
management and security teams assisted clients in presenting appropriately
their risk exposure and their security measures and even provided valuable
information about potential risks to clients.
Finding an insurance coverage: The main challenges why insurance
companies are reluctant to provide coverage are
1) Rapidly evolving cyber
threats.
2) Lack of historical data.
3) Quantifying Cyber Risk.
4) Lack of
standardization.
5) Exclusions and ambiguities.
6) Overpricing.
7) Insurer’s
limited capacity to underwrite this business.
8) Stringent underwriting criteria.
9) Aggregation of risk.
Our
professional, dedicated and experienced team has worked closely with the insurers
and re-insurers to propose more solutions to our customers, since cyber insurance coverage became necessity to run businesses smoothly.
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