[BreachExchange] Cybersecurity Insurance: Breaking Down The Benefits

Audrey McNeil audrey at riskbasedsecurity.com
Tue Jan 2 19:06:44 EST 2018


Corporate data breaches are on the rise and many businesses are rethinking
their security strategies and plans for risk management. This piece
discusses how these repercussions are causing business leaders to implement
more holistic approaches to security that include preventative measures in
addition to attack response plans that includes cybersecurity insurance.

With corporate data breaches on the rise, many businesses are rethinking
their security strategies and plans for risk management. Hacks, breaches
and outages are proving to be more than just technical issues. Instead,
they’re leading to larger potential fines in countries within the EU, loss
of customers and not just potential negative reputation for affected
companies, but the potential for actual physical harm caused to employees
or customers in certain verticals.

These repercussions are causing business leaders to implement more holistic
approaches to security that include preventative measures in addition to
attack response plans. Preventative measures serve to better network
defenses and implement best security practices. Response plans should
include cybersecurity insurance, a coverage plan designed to be implemented
when an attack occurs.

What is Cybersecurity Insurance?

Cybersecurity insurance helps protect businesses that have experienced
impacts to finances due to internet based risks. This concept first emerged
in the late 1990s when organizations were hit with disruptions from
mass-scale viruses and outages. At that time, many purchased riders to
their existing Errors and Omissions (E&O) insurance, a type of professional
liability insurance that protects companies and their workers made by
clients for negligent actions. Others purchased standalone policies that
typically had small limits on coverage, with broad exemptions. Even though
this concept has been around for decades, the cybersecurity insurance
market still remains in its infancy phase and only recently gained
notoriety due to the exponential number of security breaches headlines that
seem to be hitting our inboxes almost daily.

The Rise of Cybersecurity Insurance

In the early 2000s, an escalating number of breaches occurred in consumer
databases containing personal information. At that point, most states
enacted security breach notification laws. This prompted lawyers and
financial services companies to become increasingly involved. What’s more,
large banks and Fortune 500 companies raised demand for larger,
comprehensive policies. In these cases, some used insurance policies as
another risk transfer mechanism.

However as data breaches became a reality, those looking for pay-outs from
their policies found that many exclusions applied. For example, when Sony’s
PlayStation network was breached in 2011, more than 77 million personal
accounts were breached, which cost Sony an estimated $170 million. Sony
thought its general liability insurance policy would cover this loss, but
it didn’t. The company learned its lesson and when it had another security
breach in 2014; it had a cyber insurance policy that paid out most of its
$100 million in losses.

Moreover, there are still additional factors that cybersecurity insurance
does not take in consideration such as reputation damage, impact on
customers due to their loss of privacy and business downturns that can be
triggered by a security breach. Creating policies that address these
concerns as cybersecurity insurance continues to evolve will be critical.

Is Cybersecurity Insurance The Answer?

As the demand and premiums go up for cybersecurity insurance, and those
covered often face rigorous cybersecurity audits, can we ever look to
cybersecurity insurance to be an effective risk management solution for
organizations? As we evaluate at the current presence of cyber threats,
where IoT security risks could actually result in direct harm to consumers,
the issue of liability and fault becomes a web of complicated
interdependencies between manufacturers of devices and the consumers or
corporations that interact with them. Will policies ever pay out if a
business was impacted due to low security controls in another’s device? As
we saw in the attack on Dyn in 2016 or Mirai earlier this year, where a
large number of e-commerce and retail companies suffered outages, is it the
insurance companies responsibility to pay out all of the online companies
that were affected by the downtime due to a third party issue? In addition,
the fact that cybersecurity breaches can remain undetected for several
months or even longer, creates the possibility of accumulated and
compounded future losses.

Like insurance companies coverage of major earthquake or flood zones, can
insurance protect us in our increasingly interconnected world, where we are
dependent on the stability, and the delicacy of the Internet? Insurers will
need to overcome these obstacles to fully understand and realize the
potential this market. In addition, businesses will need to educate
themselves on policies before they buy.
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