New insurance emerging to cover cyber attacks
ARLINGTON, Va. – April 21, 2014 – The Casualty Actuarial Society (CAS) says that it created a "Task Force on Cyber Risk" to analyze the risk of cyber terrorism to businesses. While the threat of viruses, hacking, etc., has been on the national radar for a while, it grew in importance following the high-profile Target data breach last fall.
According to CAS, the task force will do research with a focus on contingent events and the financial implications. A single hack, for example, can shut down a company until the problem is fixed, and it can damage clients' financial profile; a problem could also entail legal fees and technology costs. If a transaction is in progress, a credit score problem caused by cyber hacking could upend a deal.
Some companies that already offer cyber insurance use security scores for businesses, which operate similar to a credit score. However, it's difficult to weigh all the variables if trying to gauge a potential loss.
"This is one of the brightest areas of [insurance] growth for many years to come," Robert Hartwig, president and economist at the Insurance Information Institute, said in a CNBC article. "It's quickly becoming a must-have product for not only large businesses, but smaller business, who have customer data they need to protect."
While the overall cost of cyber insurance has gone down as more insurers enter the market, it bumped up some for retailers following the high-profile Target attack late last year. Just as a hurricane increases concern about property insurance, Hartwig says, the Target cyber attack increased focus on cyber insurance.
Many aspects of cyber risk remain poorly understood, CAS says, and unscientific qualitative methods are often used. While there's research on some specific technology aspects of the risk, it's "particularly difficult to tie that research to financial outcomes and insurance coverage."
Like all insurance, cyber coverage costs can vary depending on the level of coverage a business selects, along with the type and size of the business itself. However, it does not generally cover intellectual property because insurers haven't found a way to account for the cost of that type of loss.
Cyber insurance "started out geared towards online companies," David Navetta, a founding partner at Information Law Group, told CNBC. "Then more industries, like retailers, wanted it, and now it's going down to the local laundromat. A lot of smaller players are jumping in."
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