Decoding Cyber Insurance - part two

Due to the dynamic nature of cyber risks and the potential for substantial financial losses, cyber insurance companies must gather extensive business information on clients before providing coverage.

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In Decoding Cyber Insurance – part one, we explored why Cyber Insurance is an essential cover for your business. After all, if you protect your physical business assets, you should also consider your virtual assets, as these are just as vital to your business operations. 

We also previously noted that Cyber Business Interruption, a feature of Cyber Insurance, can protect against financial losses in the event of a cyber-attack. 

In Decoding Cyber Insurance – part two, we'll consider why some cyber insurers require so much information about your business.

How cyber insurers quantify risk

Cyber insurers face unique challenges in budgeting and pricing Cyber Insurance. The complex nature of cyber risks, the evolving threat landscape, and the potential for large-scale financial losses all contribute to the need for extensive information gathering. 

For example: 

  • Almost all businesses now trade online or use online services, such as websites, cloud services, emails, etc. So, the more risks businesses face virtually, the more avenues cyber-attackers have to exploit.
  • Cyber resilience is a crucial factor that directly impacts cyber insurance premiums. The level of your exposure to cyber threats and the seriousness with which you address cyber resilience can significantly influence your insurance costs. For instance, a business with robust security measures in place would not be expected to pay the same premiums as a business without security measures.
  • Your business trade and description: believe it or not, specific entities are more exposed and more prone to cyber-attacks. Higher-risk entities include governmental bodies, The NHS, schools, charities, and information technology businesses.

Emerging risks create an uncertain insurance landscape

Unlike a property risk, where the premium can be established relatively quickly since the risks properties face are well established and predictable, the nature of a cyber-attack and its likelihood are much more difficult to anticipate.

Consider the potential of Artificial Intelligence (AI). This technology is poised to advance significantly in the near future. Cyber-criminals could exploit it as a tool of deception, which could dramatically escalate cyber-attacks, thereby increasing your insurer's exposure. This underscores the urgent need for preparedness.

Cyber insurers must remain profitable and resilient

It's a familiar position that people often take: insurers are paid a premium to pay out in the event of a claim. This is true; however, you must remember that, like any business model, cyber insurers must make a profit. Otherwise, they will be forced to cease trading and unable to pay claims.

Without delving too deeply into insurance technicalities, insurers must ensure they have sufficient funds in case of a surge in claims. Under specific legislation, they must maintain a reserve to pay claims and remain 'liquid'. This means that even in the face of multiple large claims or a significant number of small claims, they must have the financial resources to meet these obligations and maintain a healthy cash flow.

Providing an accurate picture of risk

As a final note, please be cautious when completing online quotations. While filling in a few simple dropdown boxes to obtain an online quote may seem convenient, the insurer will likely assume a lot of additional information about your business or add insurance clauses, so look out for these. Furthermore, quotation platforms do not always provide guidance on answering questions, so how you interpret them will be down to you.

Please also ensure you check all of your documentation carefully. As always, if you've engaged an insurance broker, ask them to go through the paperwork with you so you fully understand the cover you have in place. Remember, too, that your insurance broker is there to act as an intermediary between you and your insurer, ensuring questions are not open to interpretation. If in doubt, your broker can discuss covers with you and provide guidance if needed.

Contact us

If you'd like to discuss cyber liability insurance in more detail with one of our specialists, please visit the Techinsure page.

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