If a data center is flooded by rain, would you claim on your facility or your cyber insurance? Does a self-driving vehicle need insurance for humans, or is the insurer really just underwriting an algorithm?
How does a company adequately insure their staff against negligent loss of data, or exposing it to hackers through insufficient security protection?
These questions show just how complex the embryonic cyber insurance market can be. Some enterprises have explored coverage as a bulwark against financial loss from security attacks, but many of them need to accept it's not an "if" but a "when" scenario. However, the immaturity of the market and the complexity of modeling cyber risk make it a difficult requirement to navigate.
Allied Market Research has forecast that the cyber insurance market will be worth $14 billion by 2022. According to the Association of British Insurers, most cyber insurance policies have three common features, covering business interruption loss, privacy breach costs and forensic incident response.
"Business interruption might be the simplest [to insure] here, but there isn't a good catch-all answer for the cyber market, as it largely depends on the company or industry -- for example, whether you are big, small, have multiple locations or a complex network architecture," Matthew Honea, cyber director at Cyence, a San Mateo-based firm that quantifies the financial impact of cyber risk, told Security Now.
Insuring complex risks
Cyber risks are highly complicated to insure because the nature of the security threat is constantly evolving and mutating. On one side, enterprises have varying security measures in place and each company has a different attack surface. On the other, hackers constantly change targets, attack vectors, malware and payloads. With so many potential variables, it's a challenge for insurers to assess risk and therefore the current focus is on at least having some of the bases covered.
"While hackers do migrate to more complex attack techniques, strategies and ways to extract information, many fundamental concepts stay the same," said Honea. "Breaches start from either a technical process or a human process that was exploited, and that's what the [insurance] product focuses on. That being said, we also find ways to incorporate new and unprecedented macro factors, such as zero-day exploits being released publicly."
As a basic example of how risk modeling works, let's assume that a company has an FTP server that needs decommissioning. It will take time to move through the process and so the server needs to stay online throughout, until every step has been completed.
"Attackers like to target file servers because of the sensitive data that can be stored on them," said Honea. "The company will need to evaluate the cost of a breach on that server versus the cost to monitor the accounts, restrict access and upgrade the system."
Some traditional insurers are questioning whether it's a market they even want to pursue. A recent PWC report showed a 50/50 cyber insurance market split polarized by insurers that on one hand see this as an opportunity for business growth, and on the other, organizations that refuse to offer insurance for fear that it is effectively uninsurable.
Nevertheless, there are notable examples from 2017 that clearly point to the need for insurance.
"This year's WannaCry attack, which hit at least 150 countries, is a good example of a cyber incident that could have used cyber insurance for financial recovery, as Cyence estimated the potential costs from the hack at $8 billion," said Honea. "Another is AWS's four-hour outage in February, which (we) estimated lost S&P 500 companies $150 million."
As we're on the cusp of 2018, here is what Honea expects we will be seeing. Companies will get smarter about how they allocate and spend budget on security protection.
"For example, we expect to see more security budgets include a portion dedicated to cyber insurance to help mitigate uncharted risks or identified risks where technology may not help," said Honea. "Furthermore, we'll start to see insurance leveraged as a way to bridge the gap that technology vendors leave, as cybersecurity solutions can't 100% guarantee protection." Malware will seek higher ransom rewards.
"With crypto-ransomware, attackers will focus on reaching the highest value systems that can cripple an entire company -- rather than targeting everyone and anyone -- until the ransom is met," said Honea. "This can readily lead to losses in reputation, revenue and business interruption for victim companies." Insurers will begin to grapple with cyber insurance for self-driving and autonomous vehicles.
"We'll begin to see insurers take a close look at how they should be covering auto in this new autonomous setting, including what types of data they can factor since historical demographics, like age group, won't be applicable," said Honea.
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— Simon Marshall, Technology Journalist, special to Security Now