There were more than 26 million new strains of malware released into circulation in 2011. Such a rate would produce nearly 3,000 new strains of malware an hour! Almost two-thirds of U.S. firms report that they have been the victim of cyber-security incidents or information breaches. The Privacy Rights Clearinghouse reported that since 2005, more than 534 million personal records have been compromised. In 2011, 273 breaches were reported, involving 22 million sensitive personal records. The Ponemon Group, whose Cost of Data Breach Study is widely followed every year, indicated a total cost per record of $214 in 2011, an increase of over 55% ($138) compared to the cost in 2005 when the study began.
Other surveys are consistent. NetDiligence, a company that provides network security services on behalf of insurers, reported in their “2012 Cyber Risk and Privacy Liability Forum” the results of their analysis of 153 data or privacy breach claims paid by insurance companies between 2006 and 2011. On average, the study said, payouts on claims made in the first five years total $3.7 million per breach, compared with an average of $2.4 million for claims made from 2005 through 2010.
And attacks simply don’t target large companies.
- According to Symantec’s 2010 SMB Protection report, small businesses:
- Sustained an average loss of $188,000 per breach
- Comprised 73% of total cyber-crime targets/victims
- Lost confidential data in 42% of all breaches
- Suffered direct financial losses in 40% of all breaches
Indeed, according to the 2011 Verizon Data Breach Report, in 2010, 57% of all data breaches were at companies with 11 to 100 employees. Interestingly, it was the Report’s opinion that 96% of such breaches could have been prevented with appropriate controls.
The Cyber Insurance Market
With these facts, it is not surprising that the cyber insurance market has grown tremendously from its initial beginning in 2000. Starting with what was the brainchild of AIG and Lloyds of London, the market has grown to over 40 insurance providers. A widely accepted statistic is that the market now produces over $1 billion in premium to insurance carriers on a worldwide basis.
Despite the increasing claim activity, informal discussions with the market continue to indicate that cyber risk is a profitable business. Perhaps, it is for this reason, cyber premium rates are flat to down 5% according to industry reports in the market where rates in property-casualty are generally increasing.
Carriers also see this as an area where there are many non-buyers, and statistics seem to back them up. According to the “Chubb 2012 Public Company Risk Survey: Cyber,” 65% of public companies surveyed do not purchase cyber insurance, yet 63% of decision-makers are concerned about this cyber risk. A risk area with a high level of concern but little purchase of insurance is an insurance broker’s dream. In a recent Zurich survey of 152 organizations, only 19% of those surveyed have bought cyber insurance despite the fact that 76% of companies surveyed expressed concern about their information security and privacy.
It is unclear why there aren’t more buyers, but most of the industry believes it’s a lack of education. For example, previous surveys indicated that over 33% of companies incorrectly believe that cyber risk is covered under their general corporate liability policy.
It is then perhaps not surprising that the Betterley 2012 market report stated “we think this market has nowhere to go but up.” Although, they quickly qualified, “as long as carriers can still write at a profit.”
Originally published on April 2, 2013 in Insurance Thought Leadership.
Innovation Insurance Group, LLC
As the issue of cyber risk continues to grow and gain national attention, insurers, MGAs and brokers increasingly seek to provide their clients with relevant and best-of-market cyber risk solutions. These providers turn to Innovation Insurance Group for help establishing relationships in the cyber insurance arena and ensuring access to the most current and competitive cyber products.