Cyber Insurance Case Study

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Introduction:

Data is the new gold and insuring data is the new billion-dollar line of business. Data protection methods aren’t unbreakable; they merely act as a deterrent for hackers. For disruptive cyber attacks, businesses need cyber insurance to help indemnify the loss of business, reputation, and to provide services to those breached.

Cyber insurance offers the potential for extremely large losses that admitted carriers tend to avoid. Surplus lines companies are more willing to write reasonably high loss limits on these policies. Ironically, the issue with cyber liability coverage to date is a lack of data. Pricing this risk is incredibly difficult due to small sample sizes, reporting bias, lack of insurance specific data, and no
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Rebuilding consumer trust after a cyber breach is crucial, which is why many companies offer free credit monitoring and identity theft monitoring.

Insurers are taking a more active role in risk management with cyber lines than other lines. AIG, the largest writer of cyber policies, has strategic partnerships with IBM and cybersecurity companies to help their insured population understand their risks and how to best limit them (AIG). This active step in limiting insured risk is similar to health insurers using activity monitors to incentivize active lifestyles.

Cyber policies are now mainly written as stand-alone product, allowing for more customization to fit the needs of businesses seeking the coverage. Common coverages include: loss of business income, extortion, corporate data risk, property coverage, and costs relating to reporting cyber breaches including legal fees. Insurers are wary of the loss potential, as such “many insurers are also setting limits below the levels sought by their clients” and imposing “restrictive exclusions and conditions”
(O’Hearn 5). The combination of tight underwriting criteria, low policy limits, and high cost of coverage inhibits the desirability of cyber insurance, yet this class is growing sharply.

Risks

With cyber risk, the possibility of large losses is high. According to a NetDiligence study, the median cyber claim
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