The Cyber Insurance Market Is Growing, But Here’s Why That Isn’t Good News

Cyber insurance is all but a necessity in this modern world of hackers and malware concerns. A well-timed and -targeted cyber attack can not only cost businesses a fortune, it can shut small businesses down once and for all. Facing this catastrophic threat, the cyber insurance market has managed to grow to $2 billion as of 2014 (more than double what it was in 2013). Sounds like good news, right?

Well, it’s not. Why?

Because in one particular sector — a large sector — it isn’t growing at all. Small businesses employ most people in the U.S., and most are leaving themselves vulnerable to enterprising cyber criminals, notes Deputy U.S. Treasury Secretary Sarah Bloom Raskin.

“Cyber insurance take-up rates at smaller companies [with revenue less than $1 billion] have not grown,” she said at the Feb. 10 gathering of the Federal Advisory Committee on Insurance (FACI) in Washington, D.C.

“It creates a gap between coverage of large institutions and small,” Raskin said, noting a “particularly troubling” imbalance in the insurance industry’s struggle to create insurance products that adequately address the quickly evolving problem of cyber attacks.

Insurance Journal has the full rundown of issues that Raskin asked FACI — a group of industry, regulatory and academic experts that advises the Federal Insurance Office on policy matters — to address.

Among the issues:

  • Why do small (and medium-sized) businesses lag behind their large counterparts in obtaining cyber insurance?
  • How can cyber insurance become more accessible and beneficial to all institutions?
  • Are there more systemic ways to bolster cyber security of third-party vendors?
  • How can companies be aided in identifying their specific cyber risk and the right type of cyber insurance that might mitigate that risk?
  • How can government encourage the collection of cyber insurance claims data to facilitate better modeling of cyber risk?
  • How might aggregate risk exposures play out in the event of a widespread attack?

An informal poll that IJ conducted and posted at the end of their report showed that more than 76 percent of insurance agents reported only 0 to 10 percent of their clients were buying cyber coverage.

As an insurance agent, the best thing that you can do for your small business customers is remind them about the growing need for cyber protection as well as the coverages that your company offers. Purchasing a cyber policy can protect a business owner with issues of liability, material damages, and response costs. Here are some other protections typical of a cyber insurance policy. See if your company offers any of the following benefits and then make a list of the small business owners in your clientele who have yet to purchase protection.


Liability costs may include:

  • Network and information security liability
  • Communications and media liability
  • Regulatory defense expenses, including fines and penalties coverage


Primary protections may include:

  • Crisis management event expense
  • Security breach remediation and notification expense
  • Computer program and electronic data restoration expenses
  • Computer fraud
  • Funds transfer fraud
  • E-commerce extortion
  • Business interruption and additional expenses


In Summary

Cyber insurance may not be able to prevent a breach from happening. After all, hackers are very skilled at what they’re able to do, and most small businesses are still woefully unprepared to beat them at their own game. That said, this is a policy that can potentially save the life of their business and ensure that they can get back on their feet quickly in the event of an attack. How many of your small business clients are prepared for a cyber attack? Sound off in the comments section.

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