InView Autumn/Winter 2015

6 InView | An independent eye on insurance
How is the insurance sector dealing with cyber risks?
So far insurers have competed by shoehorning as many risks as they
can think of into cyber policies, resulting in wide-ranging exposure
that often clashes with other types of insurance and providing more
than buyers want or need. Customer requirements by contrast are
increasingly for more sophisticated and specialised cover.
For example, a manufacturer could lose valuable R&D work to a
hacker. This calls for a policy offering cover for business interruption,
loss of profit and legal expenses to assist with recovery and prevent
copyright infringement. By contrast, a corporate service provider
will be far more interested in cover for theft of client money. In short,
cyber policies must evolve to meet the specific threats that individual
customers face if they are to deliver real value.
The cyber threat and the global economy
The UK government has developed the Cyber Essentials scheme
as a basic cyber “hygiene” standard but it is not enough. Ministers
also need to do more to educate the public about cyber risks and
how they impact on us all. In a stark warning across the pond,
Barack Obama has spoken of a cyber attack on America’s
infrastructure having the potential to be more devastating
than conventional terrorism.
In short, cyber policies must evolve to meet the
specific threats that individual customers face if
they are to deliver real value.
Key developments in the UK market
The cyber risk insurance market has seen significant premium
generation, albeit largely from the USA where an estimated
$5 billion has been paid in premiums to date. This is due to the
regulatory position, which requires mandatory notification of data
breaches, something not currently a requirement in the UK. But this
will change in 2017 when the EU General Data Protection Regulation
is expected to come into force. With this shakeup looming, UK
demand for cyber risk insurance is bound to rise.
However, capitalising on that demand requires effort and insurers
must not sit back. The cyber landscape is vast – breaking it down into
sectors so that individuals and businesses can understand their risk
profile is important. Not only will it increase awareness but likely
determine from whom cover is bought. Far better programmes
of education and training are therefore needed, albeit with much
greater focus on specific customer needs. Get this right and policy
sales will soar.
But whilst terrorism grabs the headlines, theft is a much bigger
problem, costing Western economies billions of dollars every year.
Increasingly, countries with developing economies and fewer
protections against copyright infringement are stealing IP from
Western manufacturers to bridge gaps in R&D that would otherwise
take years and significant investment to achieve. This enables
products to be replicated and brought to market at a much lower
price, luring buyers away from traditional suppliers and adversely
impacting the GDP of countries in Europe and North America.
As productivity reduces, so do levels of employment, triggering
economic decline.
Looking ahead then, serious consequences are inevitable unless the
UK and other governments collaborate to combat the proliferation of
cyber crime. Even then, cyber threats are unlikely to be eliminated.
The insurance sector therefore has a vital role to play in helping to
ensure that businesses are able to stay competitive, both at home
and abroad, and that personal assets are protected.
© Copyright. Weightmans 2015. All rights reserved.