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Cyber Insurance: How to Successfully Manage Cyber Claims

Discover how an intelligent claims management solution enables cyber insurance companies to successfully respond to and manage cyber claims, to mitigate the impact of a cyber loss.


For the vast majority of companies, it’s not if a data breach will happen, rather when, according to the latest global IBM “Cost of a Data Breach” report. Interviews with 550 organizations globally impacted by data breaches between March 2021 and March 2022, revealed that 83% of organizations have had more than one data breach, with the average total cost of a data breach at a whopping $4.35 million.

And this trend has been steadily increasing over the past decade. There will be a new attack on a consumer or business every two seconds by 2031, according to Cybersecurity Ventures, which also expects global cybercrime costs to grow by 15% per year, reaching $10.5 trillion annually by 2025, up from $6 trillion in 2021.

Research by the Allianz Risk Barometer shows that cyber-attacks are the biggest concern for companies globally in 2022 (with 44% of responses). The threat of ransomware attacks, data breaches or major IT outages worries companies more than business and supply chain disruption (42%), natural disasters (25%) or the COVID-19 pandemic (22%).

From the mid-2010s, more and more major companies and organizations fell victim to hacking and ransomware attacks. Companies including Sony, Target, and healthcare providers such as Excellus BlueCross BlueShield, and others, had billions of customer records exposed, and suffered massive financial and reputational losses.

More recently, in the US, T-Mobile announced it would pay $350 million to settle the claims in a class action lawsuit filed by its customers over a 2021 data breach that exposed the Personal Identifiable Information (PII) of approximately 76.6 million people; Australian health insurer MediBank revealed in October that data of almost 4 million of its customer was exposed to a hacker, and it would offer compensation of over $25 million; cryptocurrency company Ronin Network was hacked for $540 Million in April, in the second biggest crypto hack of all time, and had to reimburse its customers for the amount they lost; and the list goes on…

With the losses from cyber events piling up rapidly, cyber insurance has become a hot property in the P&C space for companies seeking to minimize losses from menacing and costly cyber-attacks.

What is cyber insurance?

A cyber insurance policy protects businesses from expenses incurred after a cyber-attack, generally incurred from lawsuits related to data breaches (errors and omissions), and covers losses from network security breaches, theft of intellectual property and loss of privacy, as well as remediation costs such as legal fees, crisis communicators, and customer refunds, etc. It also covers the payments for extortion demands resulting from a ransomware attack, computer forensics experts to recover compromised data, recovering data that has been altered or stolen, repairs or replacement of damaged or compromised computer systems, and more.

Cyber liability coverage protects businesses against the risk of cyber events and can assist in the timely remediation of cyber-attacks and incidents. Currently, cyber insurance has become one of the fastest growing segments for U.S. property and casualty insurers, and is projected to become a $20 billion industry by 2025.

How does cyber insurance work?

Most cyber insurance policies offer first-party coverage of losses that directly impact a company, and third-party coverage, for losses suffered by others, such as customers or patients, due to a cyber attack.

Cyber liability insurance providers generally offer four categories of policies based on the type of cyber exposure risk:

  • Privacy liability coverage
  • Network security coverage
  • Business network interruption coverage
  • Error and omissions (E&O) coverage

Why is cyber insurance important?

After the loss, compromise or theft of electronic data businesses may be liable for damages resulting from the theft of third-party data. Cyber-risk coverage can assist in the timely remediation of cyber attacks and incidents.

Ultimately, companies covered by cyber insurance policies are able to potentially save hundreds of millions of dollars in compensation and reparations that result from major cyber security breaches. For example, when Sony’s PlayStation Network was breached by hackers in 2011,  exposing PII of 77 million PlayStation user accounts and preventing PlayStation users from accessing the service for 23 days, Sony incurred over $171 million in breach-related costs. A significant portion of this cost could have been covered by a cyber insurance policy, had Sony had data breach insurance in place.

Who needs cyber insurance?

In the 5G metaverse age, the question really is “who doesn’t need cyber insurance?” In our current digital ecosystem, online interaction, presence and data gathering power businesses and organizations world-wide. The pandemic further served to prove that the connected life isn’t going away. Instead it further increased the opportunities and attack vectors for malicious actors seeking to illicitly profit from the connected world.

Since the start of the pandemic in 2020, cyberattacks increased by 300%. Remote work and the need for interconnectivity across organizations resulted in a mass of uncontrolled online threats, which altered the cyber insurance market and further underscored the importance of comprehensive cyber risk coverage.

It’s scary stuff. Cybercriminals can penetrate 93% of company networks, according to a 2021 study of pen testing projects, conducted for range of companies and organization across sectors.

So who does need a cyber policy? In short, any businesses that create, store and manage electronic data online, such as credit card numbers or PII (phone numbers, identity numbers, etc.); e-commerce businesses of all sizes (downtime related to cyber incidents can cause losses in sales and customers); any organization or business that stores customer information online; businesses or organizations storing their own financial data; businesses with large customer bases, etc.

And size doesn’t matter. In 2021, 46% of all cyber breaches impacted businesses with fewer than 1,000 employees; 61% of SMBs were the target of a cyberattack in 2021, according to Verizon’s 2021 Data Breach Investigations Report. Employees of businesses with fewer than 100 employees experienced 350% more social engineering attacks than those at larger enterprises. In fact, smaller businesses have become attractive targets for cybercriminals because of easier access and fewer security protections in place compared to large enterprises, as a result of less media attention following an attack, and opportunities to receive smaller amounts of money from a higher number of SMBs.

Claims challenges for cyber insurance companies

The number of unique cyber insurers has doubled in the past few years from 50 to 100, nevertheless, there has been very little progress made on cyber-specific claims systems. With both the frequency and severity of claims rising, quick claims resolution is becoming more important than ever for both policyholders and insurers.

As soon as a breach is identified, the claims clock starts ticking. For cyber insurers, this means providing an FNOL process that is super-fast, simple and seamless for customers, brokers, and claims organizations to communicate all claims information.

Then, the internal claims team must be ready to quickly triage the claim and deploy the appropriate response team, which will consist of multiple external partners including law firms, financial forensic experts, digital ID experts, PR experts, etc. As such, the claims management solution needs to be able to facilitate:

  • Easy and comprehensive referrals, directly from the system
  • Sharing of information across the response team
  • Expert-specific permissions access to the claims system as needed
  • Open lines of communication across multiple channels

A breach or cyber attack that results in a claim provides also invaluable information for future underwriting audits, general risk mitigation and more effective resolution of similar claims. A claims management system should include an embedded auditing solution that captures audit data and facilitates an efficient audit program.

How Five Sigma delivers value for cyber insurers

Five Sigma offers insurers an advanced customized cloud native cyber claims solution, specifically built for the unique challenges associated with cyber claims. It’s simple and smart and includes:

  • Automated Claims Submission: All FNOL data received from the insurers or digital channels is automatically embedded into our workflows and ready for the next step in the process, with rapid system identification of claim types and automated triage and adjuster assignment.
  • Embedded Omnichannel Communications: An API level communication module supports all types of communications (including SMS, mail, voice/video calls) and all claims-related communication is documented, stored and analyzed automatically.
  • Just in-time Recommendations: Our system flags coverage and liability issues and presents the adjuster with relevant information and investigative steps within the claims system.
  • Monitoring and Management: Based on our advanced data modeling, we enable insurers to monitor their operations and receive actionable insights that will help them make strategic management decisions.

Conclusion

Cyber attacks are on the rise, and attackers show no sign of slowing down. Companies and organizations of all types and sizes are in the crosshairs of hackers world-wide, and have already suffered hundreds of millions of dollars in losses over the past decades. Cyber insurance has become a “must have” in a connected world where threat actors are constantly on the lookout for new victims and attack vectors.

The number of unique cyber insurers has doubled in the past few years from 50 to 100, nevertheless, there has been very little progress made on cyber-specific claims systems. With both the frequency and severity of claims rising, quick claims resolution is becoming more important than ever for both policyholders and insurers.

Five Sigma offers an advanced, simple to use cloud native cyber claims solution, tailor-made for the  cyber claims process. It offers automated claims submission, embedded omnichannel communications, just in-time recommendations, and monitoring and management offering actionable insights for strategic decisions.

To learn how more about how Five Sigma’s SaaS claims management solution delivers value for cyber insurers, download our use case.

 

Frequently Asked Questions

Do I really need cyber insurance?

Yes! Cybercriminals are able to penetrate 93% of company networks, meaning that virtually no-one is immune to the reach of potential cyber-attacks. The average total cost of a data breach is $4.35 million, so being insured against such an eventuality is vital for organizations and companies of all sizes and in all sectors.

What is not covered by cyber insurance?

Many cybersecurity policies do not cover preventable security breaches caused by humans, e.g., incorrect configuration management or mishandling of digital assets. Other areas that may not be covered include: Previous breaches or cyber events that took place before the policy was purchased; cyber events initiated or caused by employees or insiders; infrastructure failures not caused by a  cyber-attack; failure to correct a known vulnerability; loss of value due to the theft of intellectual property through cybercrime; loss of potential future company profits; and the cost of improving or upgrading systems or security after a data breach.

What are cyber insurance risks?

Cyber insurance risks include:

  • Liability for costs incurred by customers and other third parties as a result of a cyber-attack or other IT-related incident.
  • System recovery: Repairing or replacing computer systems or lost data can result in significant costs, and downtime losses incurred during repairs.
  • Expenses of notifying customers if a data breach has occurred or is suspected.
  • Regulatory fines if a data breach results from a business’s failure to meet compliance requirements.
  • Class action lawsuits filed on behalf of customers whose data and privacy were compromised.

 

Tirtza Bensoussan Head of Claims INSHUR US
Tirtza is the Director of Demand Generation at Five Sigma. She has over 10 years experience creating and executing successful marketing campaigns for hi-tech companies. She hold's and BS in Marketing from the Pennsylvania State University. She's an avid athlete, coffee guzzler, nature-lover, and enjoys spending her free time outdoors with her family.
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