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Cyber Insurance 'Boom' on the Horizon

Posted on Jun 28, 2012 by Sergio Ulloa ()

The recent annual conference of the UK risk-management association, Airmic, released news of a "10 fold" increase in enquiries regarding cyber insurance products, but trends in take-ups didn't follow suit. The disparity between enquiries and the take-up of "cyber" products left many wondering when the cyber insurance market will go 'boom'. Though market practictioners hold that we will see such promising growth in two years, insurance for digital property is not a new phenomenon. We have already witnessed popular developments in this sector with regards to online gaming in some countries in Asia, such as China, among others. However absurd it may seem, there have been ambitious attempts by some to insure players of Blizzard's massive multiplayer online role-playing game (MMORPG), World of Warcraft (WoW), when they experience laggy gameplay, long queues, or system downtime. Additionally, we have seen Beijing based Sunshine Insurance Group Corporation, in cooperation with the online game operator Gamebar, offer WoW players monetary compensation for loss or theft of virtual property in the game. Apart from the realm of digital gaming, there have yet to be big strides in the commercial and strictly business areas of cyber insurance. Due to the ambiguity of such a market, risk factors have made investing in protection of cyber-information a very expensive gamble. This week a survey was released which indicated that many potential policyholders, who would otherwise have an interest in various cyber-protection products, displayed a lack of knowledge in regard to digital coverage options. The results of this survey have prompted Airmic to begin encouraging communication between brokers, insurers, risk managers, and IT specialists to develop a comprehensive understanding of cyber products with consumers. Airmic also released detailed research tracking the progression of the international cyber-risk market, during its annual conference in Liverpool this week. The research revealed that every year, cyber-crime costs the UK economy EURO20 billion (USD31.09 billion), listing intellectual property theft, industrial espionage, extortion costs, and direct online theft as the causes of loss in a decreasing order of cost. Regardless, Airmic's technical director, Paul Hopkin, said that the association is happy with the direction of the cyber-risk insurance sector. "When we took stock of how the market has changed, it was very reassuring to find the cyber-risk market has changed quite considerably and is now much more aligned with what we are looking for," he said, "The communication issue is one we are focusing on and, hopefully, the market will continue to respond favourably." Additionally, Ben Beeson, executive director of global technology and privacy practice at Lockton Companies LLP, said European cyber-risk cover is growing, due to a number of factors beginning to drive the market forward. Beeson noted that these factors include "legal and regulatory change in the EU and technology and business model change, with cloud computing and outsourcing risks." He said that intellectual property theft from cyber-espionage, and losses from cyber-warfare are two particularly difficult aspects of the cyber insurance market. Furthermore, one company to recently jump on the cyber-insurance train is the Bermudian insurer Argo, with a new cyber-liability insurance product. Argo believes that its product will mirror the extent to which businesses depend on information techonology. The product's launching tails the newly released data security disclosure obligations from the US Securities and Exchange Commission (SEC), which are expected to initiate expansion in the US cyber-liability insurance sector. Distributed through Argo Pro, its latest product attempts to appeal to a variety of sectors, such as insurance brokers, motor dealers, retail businesses, and many more. Argo also plans to combine NetDiligence, a data breach services and cyber risk-assessment company, to allow policyholders to access information regarding cyber losses prevention and support. Senior vice-president of Argo Pro, Michael Carr, said that "Advances in information technology have revolutionised the ways businesses attract, retain, and interact with customers. Along with benefits in speed and efficiency, these changes have created a variety of new exposures to loss - from liability for content on corporate Facebook pages or YouTube channels to privacy fines to business interruption from systems compromises." The recently released information from the SEC targets public companies and their responsibility to inform investors of cyber-risks. Some speculate that the SEC changes are promoting interest in US cyber-liability insurance, but as with the current UK situation, it is not known whether the changes are effective in actually selling cyber related products. In support, QBE Australian insurance disclosed data that showed UK companies to be unequipped to deal with cyber-crime. QBE's survey results indicated that 46 percent of UK companies don't even have a documented procedure in the event of a security breach. While the cyber-insurance market is still young and emerging, clients and insurance companies have begun to recognize the importance of such a sector in a world where information technology is one of the fastest growing industries. In the near future, we are bound to see global insurers invent and innovate in the cyber-risk sector, to better provide customers and businesses with truly comprehensive security. Insurance Companies Mentioned Argo Insurance Group Argo Group International Holdings provides specialty insurance and reinsurance products within the property and casualty line on an international scale. All of Argo Group's insurance subsidiaries maintain an A.M. Best's "A" rating, and an Standard & Poor's "A-" rating, both with stable outlooks. QBE Insurance Group Sydney, Australia QBE Insurance Group is in the top 20 global insurers and reinsurers by net earned premiums. QBE provides general insurance cover for personal and commercial risks, with offices in 52 different countries.
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