Risk Insider: Martin Eveleigh

Cyber Risk Insurance: An Ever-Evolving Coverage

By: | March 28, 2017 • 3 min read
Martin Eveleigh is Chairman of Atlas Insurance Management, which he formed in 2002. He specializes in designing alternative risk transfer programs – particularly risk pools – and captive structures. He can be reached at [email protected]

The evolving category of cyber risk insurance continues to receive increased awareness each year, as more and more security breaches continue to surface. Across all industries, the number of cyber attacks, and the costs associated with them, are increasing.

First, the bad news.

The 2015 Verizon Data Breach Investigations Report identifies the top three industries affected by data breaches as Public, Information and Financial Services; while the 2015 Ponemon Institute Research Report indicates that Health, Education and Pharmaceuticals are the most costly per capita. The overriding message from both reports is that no company is immune to cyber attacks.

There were 79,790 known security incidents globally in 2014 with 2,122 confirmed breaches producing loss. The reports also show a 23 percent increase in the total cost of breaches since 2013 and a 12 percent increase in the per capita cost.

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The Ponemon Report identifies three main reasons contributing to higher costs of data breaches in 2015:

  1. Cyber attacks are more frequent and costly.
  2. Data breach costs are impacted by lost business.
  3. Costs associated with detection of data breaches are increasing.

With risk increasing, it is no longer a question of whether a business will be subject to some level of cyber attack, but when and how. Knowing this, what can businesses do to mitigate the risk and damage?

Professional cyber security consultants agree preparation is key. In addition to developing a compliance work plan, companies should identify unpatched vulnerabilities in software and install test patches regularly. Also, certain industries are now mandating specific regulatory compliance criteria be met, and the insurance industry is taking note.

Creating a More Sound Cyber Risk Policy

Despite the best efforts at prevention, however, the risk of cyber attacks and breaches is great. A company can spend thousands, if not millions, on a security system and firewalls; but one employee opening a phishing email can compromise all defenses and allow criminals inside your system undetected, which is why a robust cyber insurance policy is critical to a company being properly protected.

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Unlike other coverage forms, there is no established standard cyber insurance form utilized by carriers in the standard commercial insurance market. To be protected, businesses need to know whether coverage is provided, and at what level, for:

  • regulatory actions
  • incident response costs
  • credit and identity monitoring
  • transmission of viruses
  • business interruption and extra expenses
  • extortion expenses
  • data loss and restoration

A careful review of coverage is critical because a particular coverage that may be most important to your business could be excluded or limited in scope or amount. A captive is an excellent vehicle for providing coverage for cyber risks, as it has the flexibility to tailor coverage to the specific needs of your business.

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Cyber risk is certainly here and rapidly increasing, but you can reduce its risk to your business with the right combination of security and proper insurance. And for insuring cyber risk, a captive just may be your best solution.

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.
By: | April 19, 2017 • 2 min read
Topics: Cyber Risks | RIMS

“The sky is not falling” when it comes to cyber security, but the threat is a growing challenge for companies.

“I am not a cyber apocalyptic kind of guy,” said Gen. Michael Hayden, former head of the Central Intelligence Agency and National Security Agency, who currently is a principal at the Chertoff Group, a security consultancy.

Gen. Michael Hayden, former head of the CIA and NSA, and principal, The Chertoff Group

“There are lots of things to worry about in the cyber domain and you don’t have to be apocalyptic to be concerned,” said Hayden prior to his presentation at a Global Risk Forum sponsored by Lockton on Sunday afternoon on the geopolitical threats facing the United States.

“We have only begun to consider the threat as it currently exists in the cyber domain.”

Hayden said cyber risk is equal to the threat times your vulnerability to the threat, times the consequences of a successful attack.

At present, companies are focusing on the vulnerability aspect, and responding by building “high walls and deep moats” to keep attackers out, he said. If you do that successfully, it will prevent 80 percent of the attackers.

“It’s all about making yourself a tougher target than the next like target,” he said.

But that still leaves 20 percent vulnerability, so companies need to focus on the consequences: It’s about response, resiliency and recovery, he said.

The range of attackers is vast, including nations that have used cyber attacks to disrupt Sony (the North Koreans angry about a movie), the Sands Casino (Iranians angry about the owner’s comments about their country), and U.S. banks (Iranians seeking to disrupt iconic U.S. institutions after the Stuxnet attack on their nuclear program), he said.

“You don’t have to offend anybody to be a target,” he said. “It may be enough to be iconic.”

The world order that has existed for the past 75 years “is melting away” and the world is less stable.

And no matter how much private companies do, it may not be enough.

“The big questions in cyber now are law and policy,” Hayden said. “We have not yet decided as a people what we want or will allow our government to do to keep us safe in the cyber domain.”

The U.S. government defends the country’s land, sea and air, but when it comes to cyber, defenses have been mostly left to private enterprises, he said.

“I don’t know that we have quite decided the balance between the government’s role and the private sector’s role,” he said.

As for the government’s role in the geopolitical challenges facing it, Hayden said he has seen times that were more dangerous, but never more complicated.

The world order that has existed for the past 75 years “is melting away” and the world is less stable, he said.

Nations such as North Korea, Iran, Russia and Pakistan are “ambitious, brittle and nuclear.” The Islamic world is in a clash between secular and religious governance, and China, which he said is “competitive and occasionally confrontational” is facing its own demographic and economic challenges.

“It’s going to be a tough century,” Hayden said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]