5 Factors Causing Cyber Insurance Rates to Increase
In today’s digital age, cyber risks have become an unavoidable reality for businesses of all sizes across every industry. High-profile data breaches and crippling ransomware attacks make frequent headlines, shining a light on the costly aftermath organizations endure.
To mitigate these escalating exposures, cyber insurance has rapidly become an essential risk management tool for companies looking to transfer portions of their cyber risk. However, rising cyber insurance rates reflect the seriousness of modern-day cybercrime tactics and their devastating financial impacts.
Let’s explore the top five factors driving up cyber insurance pricing in the current landscape:
Explosion of Ransomware Incidents
Topping the list of contributors to cyber insurance rate increases is the surging prevalence of ransomware attacks. This particularly insidious form of malware encrypts an organization’s data and systems, holding them hostage until exorbitant ransom demands get paid (often in untraceable cryptocurrency).
The frequency of ransomware deployments has skyrocketed in recent years. Equally concerning is the explosion in ransom payment amounts requested by criminal groups, which more than doubled to over $84,000 on average in late 2019, according to reports from Coveware.
With ransomware becoming more and more of a threat, insurers face escalating claims from policyholders forced to decide between investing in costly decryption efforts, restoring entire system backups, or simply paying hackers’ demands.
Rising Cyber Incident Response Costs
Beyond potential ransomware payouts, the overall costs of responding and recovering from any sort of cyber incident or data breach continue their steep upward trajectory as well.
From consultant and legal fees to forensic investigations, credit monitoring services for impacted customers, public relations expenditures, regulatory penalties, and business interruption losses — responding properly requires an extensive (and expensive) undertaking.
In fact, NetDiligence research found that cyber insurance claims impacting small to mid-size enterprises averaged $343,000 in business interruption costs alone while systems got restored. As these collateral costs compound, insurers must adjust pricing accordingly.
Rising Replacement/Upgrade Expenses
Following a major cyber incident, organizations often have no choice but to implement comprehensive system and application replacements or upgrades. This is particularly true after a ransomware infection, which can create irreparable damage.
With replacement technology and overhaul costs mounting, cyber insurers must account for this growing portion of claim payouts factored into policy pricing.
Poor Cybersecurity Practices Among Policyholders
While hackers’ tactics and tools advance rapidly, many organizations still struggle to maintain robust cybersecurity hygiene and best practices. This fundamental lapse in cyber preparedness directly contributes to elevated insurance costs.
From neglecting to install critical software patches and updates to risky work-from-home setups during COVID-19, insurers constantly encounter policyholders with glaring vulnerabilities that increase the likelihood of disruptive cyber incidents occurring.
In the face of such complacency around cybersecurity fundamentals, insurers have no choice but to hike premiums for cyber coverage across their entire books of business.
Lack of Consistent Incident Response Planning
Even more concerning than poor cybersecurity practices is the general absence of cyber incident response plans among organizations of all sizes.
Without formal processes outlining roles, procedures, notification channels, response resources and more, organizations inevitably incur significantly higher cyber incident costs stemming from delayed actions, redundancies, oversights and lack of coordination.
Insurers clearly must account for this heightened risk exposure from policyholders’ failure to control losses during cyber incidents, reflected in escalating premium costs.
What Does Cyber Insurance Cover?
With the increasing rates of cyber insurance, it’s crucial to understand exactly what this specialized coverage entails and why it matters for protecting businesses’ financial well-being.
Cyber insurance policies help transfer certain cyber risk exposures to insurance companies by covering a variety of expenses related to cyber incidents like:
- Data Breach Response Costs: Legally-required breach notification processes, remediation efforts, forensics investigations, legal fees, public relations, credit monitoring, etc.
- Ransomware/Extortion Assistance: Coverage for qualifying ransom payments, consultant expenses for negotiating demands, data recovery services, etc.
- Business Interruption Losses: Reimbursement for lost income/revenue or incurred expenses resulting from system downtime during cyber incidents.
- Third-Party Liability Exposures: Legal defense and settlement coverage for liability claims related to compromised customer or client data during a breach event.
- Digital Asset Restoration: Coverage for costs to restore, recreate, or regain operational use of corrupted or encrypted data and software assets.
While cyber insurance doesn’t protect against cyber incidents from actually occurring, it absolutely proves invaluable in mitigating the immense financial damages and downstream consequences for impacted organizations.
Why Cyber Insurance is Essential
By now, it should be abundantly clear why cyber insurance has become a necessity for virtually every business:
- The costs of cybercrime continue to escalate rapidly each year, creating substantial financial exposures even for smaller organizations.
- Data breaches and cyber incidents are highly disruptive events that can derail operations for weeks or months.
- Having funds available for incident response, ransomware assistance, legal fees, loss of income, and other expenses provides an invaluable lifeline for recovery following an attack.
- Cyber liability for negligence related to data exposure represents a significant legal risk that cyber insurance policies help cover.
Rather than putting the entire business at risk of going bankrupt or shutting down after a cyber incident, companies armed with cyber insurance have the resources to bounce back.
Get a Free Risk Assessment
KSA partners Coalition offers a free cyber risk assessment, providing an overview of your risks and vulnerabilities. In addition to highlighting your vulnerabilities, the assessment includes a summary of recommended actions to help you mitigate your risk. Coalition also offers access to trained cybersecurity experts who can answer any questions you may have about the assessment or the recommendations you are provided.
