The cyber insurance industry is developing rapidly, opening doors for closer relationships between insurers and policyholders. As organizations rapidly grow their data assets, they must be aware of the risks that go along with them. At a time when businesses are frantically scaling their digital assets and building their key capabilities, cybercriminals are eagerly waiting for opportunities to exploit vulnerabilities and loopholes leading to massive data breaches. With new risks, digital protection needs to be prioritized as highly as physical security, if not more.
According to Verizon’s 2020 Data Breach Investigations Report, the most common outsider attacks on the insurance and financial industry are scams, phishing attacks, and pretexting attacks. Data breaches are becoming increasingly common and may diminish customer loyalty and attract high fines. Since the risk landscape is evolving ever so quickly, it is crucial for underwriters to be more forward-looking and provide more tailored and specific cyber policies to their clients.
Here are some of the top predictions and trends that the cyber insurance industry will witness in 2021.
- Insurance and Cybersecurity to Collaborate Closely
The insurance industry and cybersecurity are often considered to be different industries. However, over the years, this perception has changed quite a bit. With IoT devices and various sensors found in automobiles and smart homes, companies with good cybersecurity could potentially be credited with insurance coverage credits, very similarly to how your insurance premiums stay low and you earn ‘no claim bonuses’ when you are accident-free.
To build up a foolproof cybersecurity framework, cyber insurance is necessary. As organizations strive to deploy various cybersecurity tools to detect, mitigate and deflect threats, they need to be protected on all fronts in case of any accidents. This is where cyber insurance steps in – to mitigate loss in case of a severe breach. The future is very promising for collaboration as an increasing number of cyber-attacks, extortion, ransomware, business interruption and social engineering plague various industries.
- Cyber Insurance Awareness Will Grow Exponentially
The road to a streamline and organized cyber insurance market is still a long way off. However, there is a current drive to educate policyholders as well as brokers and agents on the nuances of cyber insurance. In the coming years, the education gap is expected to become smaller and insurers will have to provide policies for those who aren’t well versed in cyber insurance. Many businesses are becoming increasingly aware of the necessity of cyber insurance, but are unsure of the right policy for their firm. Some of the largest hindrances to writing and selling cyber insurance are not understanding coverage, exposure and cost of insurance. By having a clear picture of what encompasses cyber-attacks, insureds may be able to justify and gauge the ideal policy for them. By eliminating jargon and confusing policy elements, insurers will be able to educate their customers and provide useful tools to make the entire process hassle-free.
- Cyber Managing General Agents Will Unite:
A growing number of mergers and acquisitions between Managing General Agencies (MGA) is likely in the future as private equity focuses on this sector and MGAs provide the tax tools for acquisitions. The growth of MGA’s so far has been a fascinating one – with the majority resorting to consolidation, some independent MGAs continue to flourish, and the rest getting absorbed by carriers or transforming to insurance carriers themselves. The key differentiator to continue growing is taking the right risks and making policy handouts. Since Managing General Agents mostly deal with the small to midsize market, the need for full-suite cyber insurance and cybersecurity services continues to grow.
- Cyber Insurance Demand Will Grow Tenfold
As the spate of cyber-attacks increases year by year, so will the growing demand for cyber insurance. The global cyber insurance market is expected to reach an approximate valuer of $20 bn by 2025. The major industries that will drive this change will be manufacturing, retail, healthcare, professional services as well as government agencies. Over time, cyber insurance will also be extended to individuals and families, as the use of technology is present in every facet of our lives. Data protection laws and regulations are a key driver to boost cyber security. As the world comes together to bolster data protection laws, they may serve as a key deterrent to cyber criminals and we may see a stability and downturn of cybercriminal activities.
- Complex Nature of Risk Requires Top Expertise
Playing in a volatile and unpredictable field like cybersecurity where there is a high risk taken by both parties, means that cyber insurance companies need to ramp up their efforts to tackle crucial topics like silent cyber, data analytics, accumulation control, and more. Top industry experts report that hardening marketing conditions this year is increasing the number of claims as well as demand. Due to the predicted increase in claims frequency and severity, the market will inevitably show heightened underwriting discipline with a strong focus on ransomware events that can trigger multiple covers. Designing a policy and deciding what is to be covered is equivalent to stepping into a minefield. Therefore, monitoring cyber accumulation is a vital task for industry players. Apart from designing an effective cyber risk management process, sophisticated accumulation models need to be in place.
As the demand for cyber insurance grows, there are many unpredictable events that may occur and pivot the market in a completely new direction. Insurance companies need to build better capabilities for cyber insurance to adapt to the evolving digital world. That being said, an awareness of certain trends by industry leaders can help them foresee certain changes in the industry and prepare for future contingencies.