Cyber Insurance: Why Do We Need It?

by 17:37 0 comments Cyber Insurance

By: Vipul Aggarwal, BCA 6th Semester, 2nd Shift

With the increase in the use of technology, social media and online transactions by organizations for business and/or reaching out the prospective customers, the threat for cyberattack is increasing day by day. Cyberattacks, done by the hackers, criminals, insiders or even nation states, can cause moderate to severe losses for the organizations whether large or small. As a part of the risk management plan, organizations must decide which risks to avoid, accept, control or transfer. The transferring of the risks is where the cyber insurance comes into play.

Cyber insurance policy which is also known as cyber risk insurance or cyber liability insurance coverage (CLIC), is designed to help an organization mitigate risk exposure by offsetting costs involved with recovery after a cyber-related security breach or similar event. Concept of cyber insurance as a risk management plan was started in the 1990s. Although its roots were looking strong in the 80s, the market for it failed to thrive. It finally started catching on by 2005 with the worth $2.5 billion and it is expected that the total values of premiums will reach $7.5 billion by 2020. Cyber insurance typically covers expenses related to first party as well as third party claims. There are several reimbursable expenses that are involved in it like investigation, business losses, privacy and notification and lawsuits and extortion. Since the cyber insurance is still evolving, the underwriters have limited data to determine the financial impact of the attacks, so the true risk of cyberattacks is not completely understood.

Compared to the market in US and UK, the cyber insurance market is yet to evolve in India. Currently only HDFC Ergo, Tata AIG and ICICI Lombard offers insurance cover in India again cyber risks and threats. Also Reliance General Insurance and Bajaj Allianz are in the process of providing cyber insurance to cop up with the increasing demand for such products in India. Currently the maximum cover that is provided in India is Rs. 300 crores but the providers are saying that the cover can be raised to Rs. 600 crores based on the specific requirement of the customers. Since India is starting towards the Digitalization, it is expected that there will be a huge growth in the cyber liability insurance market and more companies will start taking benefit of it.

Despite the advantages of cyber insurance, one should understand that this is not a solution to the security threats or vulnerabilities. It just transfers the security cost risk from the insured to the insurer. We should also understand that cyber insurance is like any other insurance policy that helps us to cop up with the real life risks and can be used in the situations where the threats are really prevailing.