Challenges in Cyber Insurance Industry

Blockchain analysis firm Chainalysis reports that ransomware made a major comeback in 2023, leading to a record-high global ransomware payment of $1bn. Students in London may recall that the British Library was one of the victims, too.

The increasing number of cyber attacks in recent years has posed a worrying threat to the cyber insurance industry, a field of insurance specialised in covering firms’ liability for data breaches. The COVID-19 pandemic and the recent geopolitical tensions worldwide can partly explain the surge. COVID-19 accelerated companies’ transition to remote working, which provided cybercriminals opportunities to exploit the vulnerability of home workers’ devices. The geopolitical tensions, such as the Russian-Ukraine war, resulted in a rising number of cyber attacks with political motives. Moreover, experts have been worrying about the development of cyber weapons throughout the wars, which might be used against commercial targets after the war's end.

There has been heated discussion in the insurance industry arguing that cyber risk may not be insurable any more, owing to the increasing intensity of frequencies of state-backed cyber attacks. Insurers try to exclude such attacks from their coverage on the grounds of the traditional ‘acts of war’ exclusion. However, the difficulty to pin responsibility for cyber-attacks on a specific entity makes things complicated. Some argue that the government should step in and provide a guarantee for this market, which was exactly what the UK government did for the terrorism insurance industry 30 years ago after the industry suffered massively from the IRA’s bombings. 

Cyber attacks can also impact the risk landscape within the life insurance and pensions industry. A hacker’s failed attempt to add a dangerous level of sodium hydroxide to the Florida water system in 2021 can be a good example, as such events could change long-term mortality and longevity risks.

References:

Ransomware payments hit $1bn for the first time https://www.theactuary.com/2024/02/15/ransomware-payments-hit-1bn-first-time

New world, new threats https://www.theactuary.com/2022/04/04/new-world-new-threats

Insurance Uncut - Cyber https://www.lcp.com/our-viewpoint/2023/02/insurance-uncut-season-3-episode-1

Is state intervention needed for cyber insurance? https://www.ft.com/content/e5fa921b-8929-442b-8ab5-261229d0802d?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content

Are the GI Actuaries hogging Cyber Insurance Risk? https://blog.actuaries.org.uk/are-the-gi-actuaries-hogging-cyber-insurance-risk/

Hacker tries to poison water supply of Florida city https://www.bbc.co.uk/news/world-us-canada-55989843