Cyber insurance market expected to show “double-digit” growth

Cyber risk remains one of the “most underestimated” risks for businesses, but no “silver bullet” exists to address it, according to a new report from Allianz Global Corporate & Specialty (AGCS). However, the firm expects that the insurance market to address these risks will show double-digit growth over the next 10 years, rising from an estimated $2 billion to $20 billion.

“Growth in the U.S. is already underway as data protection regulations help focus minds, while legislative developments and increasing levels of liability will see growth accelerate in the rest of the world,” said Paul Schiavone, regional head of financial lines in North America.

AGCS cited an estimated average cost of data breaches at $3.8 million, a number that has made organizations sit up and take notice of their potential risks. The study highlighted the cost of cyber crime to nations across the globe, for a worldwide total of $445 billion annually in economic costs. The United States leads all others in the cost to the economy, at $108 billion, followed by China at $60 billion and Germany at $59 billion. These numbers have exploded in recent years, AGCS pointed out.

“As recently as 15 years ago, cyber-attacks were fairly rudimentary and typically the work of hacktivists, but with increasing interconnectivity, globalization and the commercialization of cyber-crime there has been an explosion in both frequency and severity of cyber-attacks,” said AGCS CEO Chris Fischer. “Cyber insurance is no replacement for robust IT security, but it creates a second line of defense to mitigate cyber incidents. AGCS is seeing increasing demand for these services, and we are committed to working with our clients to better understand and respond to growing cyber risk exposures.”

Beyond data breach notification costs and potential lawsuits, organizations have become more aware of the contingent effects, when driven by hackers or otherwise, the study noted.

“Business interruption (BI), intellectual property theft and cyber-extortion – both for financial and non-financial gain – risk potential increasing. BI costs could be equal to – or even exceed – direct losses from a data breach,” stated AGCS. “Attacks by hackers dominate the headlines but there are many “gateways” through which a business can be impacted by cyber risk. Impact of BI triggered by technical failure is frequently underestimated compared with cyber-attacks.”

For each facet of cyber risk, demand for insurance solutions has grown, AGCS found. The firm predicted that much more understanding on the parts of organizations and underwriters is necessary to meet the need.

“Cyber insurance is no replacement for robust IT security, but it creates a second line of defense to mitigate cyber incidents. AGCS is seeing increasing demand for these services, and we are committed to working with our clients to better understand and respond to growing cyber risk exposures,” said Fischer.

Added Nigel Pearson, global head of fidelity at AGCS, “There is currently a lack of knowledge in the insurance Industry. We are learning quickly but there is a shortage of talent and skills. The industry needs to up its game in terms of risk assessment and expertise.”