Cyber threats continue to plague businesses of all shapes and sizes and, with these exploits, the risks affecting organizations steadily increase. In IBM’s annual study, released June 2021, the technology giant reported the cost of data breaches rose from $3.86 million to $4.24 million over the previous year.
It’s clear most businesses cannot sustain these losses and, as a result, the cyber insurance sector has begun to come to the forefront of coverage businesses need. It’s a relatively new type of coverage and is one that is poised to see a huge transformation in the near future. Here’s why.
Cyber insurance is a small component of the overall insurance industry, but it is one that is rapidly growing. The problem this market segment is experiencing is the fact it has no historical data to draw from to adequately price premiums and assign risk. It’s becoming clear that insurance companies cannot keep up with the pace of cyber threats to accurately determine risks and premiums.
As a result of cyber threats and the costs associated with them rising, insurance companies are currently paying out more in damages than they collect in premiums. Clearly, this isn’t sustainable. In the future, it’s a certainty that adjustments will need to be made. This is especially true as the problem is further compounded by the fact that many businesses are discovering this typeof coverage exists and are investing in it.
The imbalance that exists between cyber insurance and cyber threats is becoming a larger issue as the number of ransomware attacks explodes. Next to social engineering and phishing attacks, ransomware is the second biggest threat businesses face. However, considering phishing emails top the list of the ways ransomware is deployed and delivered, it can arguably be said that ransomware is “double-dipping” for the two biggest threats. The cyber insurance sector faces an uphill battle when it comes to covering businesses from this threat.
Going forward, it’s almost certain the cyber insurance niche is going to transform to establish itself to become a more sustainable business model. Solutions may include being more restrictive about who can get coverage, what is covered, and what won’t be covered. To accomplish this, businesses can probably expect to have higher premiums, along with lower coverage limits, especially for at-risk industries, such as healthcare and education, since they are two of the largest targets of cybercriminals.
In the upcoming months and years, it’s a given something will change. SMBs without solid cybersecurity strategies and comprehensive cyber risk management programs may find it harder to qualify for a policy or obtain better insurance rates. It’s probable the cyber insurance market segment will become more standardized so companies can mitigate their own risks to make certain the level of claims doesn’t exceed or outpace the money brought in via insurance premiums.
If you’re looking to mitigate your risks, Trava can help. Our solutions make it easy for you to identify cyber threats, reduce risks, and make certain your financial assets are protected and your business isn’t disrupted by cybersecurity incidents. Contact us today to learn more.
And watch this video to hear from cyber industry veteran and founder and CEO of Altus Partners, Charlie Wilmerding, about the history—and the future—of cyber insurance.
Insurance brokers, let Trava uncover cyber risks and help patch them before you write a policy.