According to a new report – A Guide to Cyber Risk: Managing The Impact of Increasing Interconnectivity – by specialist insurer Allianz Global Corporate & Specialty, businesses must prepare for a new generation of cyber risks which are fast evolving, moving beyond the established threats of data breaches, privacy issues and reputational damage to operational damage, business interruption and even potentially catastrophic losses.
The new report examines the latest trends in cyber risk and emerging perils around the globe. Cyber risk is a major and fast-increasing threat to businesses with cyber-crime alone costing the global economy approximately $445 billion a year, with the world?s largest 10 economies accounting for half this total. In Australia, cyber risk is estimated to cost the economy 0.08% of GDP per year, or approximately $1.3 billion.
“In Australia, the Federal Government has stated that it will introduce a mandatory data breach notification scheme by the end of 2015 or in early 2016, which is expected to drive interest in cyber insurance,” said Regional AGCS CEO, Holger Schaefer.
“We have already seen a significant increase in cyber insurance inquiries as boards of directors become more aware of their regulatory and operational exposures to cyber risk.”
Data breaches are common and differ in seriousness; they can also take a long time to detect. Earlier in September US insurance group Excellus Blue Cross and Blue Shield warned that up to 10 million customer records may have been compromised during the course of a two-year cyberattack on its computer systems, with initial investigations indicating that customer names, dates of birth, Social Security numbers, mailing addresses, telephone numbers, member identification numbers, financial account information and claims information could all potentially have been accessed.
“Cyber attacks are increasing in frequency and sophistication, making cybersecurity an area of risk that must be actively managed by firms similar to all other areas of risk,” said Kenneth E. Bentsen, Jr., president and CEO of the US trade group Securities Industry and Financial Markets Association. SIFMA has just completed a cybersecurity exercise with 650 participants from over 80 financial institutions and government agencies.
An increase in cyber risk is good news for at least one industry, with the latest research from PwC indicating that cyber insurance is set to triple in value over the next five years as the market reaches at least a US$7.5 billion valuation by 2020 – although insurers need to offer better value to their clients. Previous PwC research revealed that 61% of business leaders across all industries see cyber attacks as a threat to the growth of their business, and 2014 saw an average of 100,000 global security incidents a day.
“As Boards become increasingly focused on the need for safeguards against the most damaging cyber attacks, insurers will find their clients questioning how much real value is offered in their current policies,” said Paul Delbridge, insurance partner at PwC.
“If insurers continue to simply rely on tight blanket policy restrictions and conservative pricing strategies to cushion the uncertainty, they are at serious risk of missing this rare market opportunity to secure high margins in a soft market. If the industry takes too long to innovate, there is a real risk that a disruptor will move in and corner the market with aggressive pricing and more favourable terms.”