EMBARGOED: Skyrocketing cyber liability insurance leaving businesses unprotected
Wednesday, 05 Nov, 2015
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As each new data breach hits the headlines, the talk in boardrooms and at water coolers invariably returns to the subject of cyber liability insurance, or lack of it. From Target to Trump Hotels, it is the big fish that everyone remembers, but no business, however small, is immune from hackers.
In fact e-commerce tech firm First Data recently reported that nearly 90% of breaches affect small businesses, and these typically go undiscovered for a longer length of time due to many having no dedicated data security team. The average cost of a breach in a small company: $36,000, First Data said.
As every new data breach becomes headline news, the cost of cyber liability insurance seemingly skyrockets. In turn, insurance premiums can vary widely. The industry is still in its infancy with very little historical data to back up actual risk and set a fair premium.
"Part of the challenge is that businesses don’t have a consistent approach to calculating security risks, and the process of determining what is acceptable to the business varies from industry to industry," said Sarb Sembhi, director at STORM Guidance.
"In addition, other factors also affect these calculations. There is also no driver at the moment to take a single consistent approach in putting real monetary values on costs of breaches," Sembhi added.
Car or home insurance policies can be easily quantified based on a market valuation of a tangible asset, but not so when factoring in costs associated with damage to a brand’s reputation, loss of customer confidence and potential lawsuits. For obvious reasons these are often not covered on policies.
All the big insurers are insisting on big deductibles for high risk retailers and limiting cover to $100 million or less even for major billion-dollar companies.
"A lot of the insurers have gotten burned. They are coming back with harsher and more challenging penalties," said Bob Shaker, a manager at Symantec Corp’s breach response team.
There is also greater due diligence needed now with firms required to show they have sufficient policies in place to combat a data breach, and if one does occur, the ablility to identify it quickly. Companies unable to do this simply won’t be provided with cover.
This leads to two main questions – how much does it really cost and is it worth it? Of course this all depends on the type of business, what the level of exposure is and several other factors. The general consensus is that most companies, such as travel firms, can expect to pay about $15,000 per year for $1 million worth of cover. Whether this is actually worth the investment is a judgement call that each individual business needs to make based on its own circumstances.
As premiums are calculated on an individual basis, a strong data security defense policy and an incident response plan can bring down the cost of cover, according to a study by the Ponemon Institute. The study says a pro-active information security plan with trained staff able to carry it out can reduce the cost of insurance when purchasing cover that is targeted at the company’s specific needs.
The Department of Homeland Security’s National Protection and Programs Directorate (NPPD) has highlighted the four ‘pillars’ of effective cyber security, which may help lower insurance premiums:
• Engaged executive leadership
• Targeted cyber risk education and awareness
• Cost-effective technology investments
• Relevant information sharing
Cyber security liability insurance products are still maturing and are likely to evolve at a rapid pace, possibly for many years to come, as cybercrime itself continues to set new boundaries. Currently, information sharing about breaches is weak, as companies – fearful of bad publicity and potential lawsuits – are reluctant to willingly offer up any information beyond the bare minimum legally required. The US Cybersecurity Information Sharing Act (CISA), which would be run by the Department of Homeland Security, could change this, giving legal immunity to companies which share important information on data breaches.
However this is some way off yet and insurers are still trying to figure out the market and set cover accordingly. This will likely mean some businesses will continue to find cover either too expensive, inadequate or simply not available. Current estimates say fewer than 20% of all large companies in the US have cyber liability policies, and only 6% of small businesses have it.
TravelMole Editorial Team
Editor for TravelMole North America and Asia pacific regions. Ray is a highly experienced (15+ years) skilled journalist and editor predominantly in travel, hospitality and lifestyle working with a huge number of major market-leading brands. He has also cover in-depth news, interviews and features in general business, finance, tech and geopolitical issues for a select few major news outlets and publishers.
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