Cyber risk is costing the global economy $445 billion annually, $108 billion of which comes from the U.S., according to a new report. The report from insurer Allianz Global Corporate & Specialty (AGCS) also predicts cyber insurance premiums will grow globally from $2 billion per year today to more than $20 billion in the next decade. Allianz said in the report:
Cyber risk is now a major threat to businesses. Companies increasingly face new exposures, including first- and third-party damage, business interruption and regulatory consequences.
AGCS said the problem has become severe only in the last 15 years, though it has a particularly severe impact on the world’s top economies. Out of the $445 billion annual global cost, $200 billion-plus of that number comes from the world’s largest economies – the U.S., China, Japan and Germany. The top 10 global economies account for more than 50 percent of cyber crime costs, according to the report.
AGCS said that cyber risk remains the most underestimated by businesses. But as companies increase their awareness and the government attempts to respond to the problem, there remains rapid growth potential in the area for property/casualty insurance carriers. But as premiums grow, carriers must adapt to counter the cyber risks as they evolve and change. AGCS said that cyber risks of the future will become more complex than they are now.
Corporate data breaches and privacy concerns drew much of the initial attention, but future cyber issues will stem from intellectual property theft, cyber extortion, and the impact of business interruption after a cyber attack, AGCS noted. “Within the next five to 10 years, [business interruption] will be seen as a key risk and major element of the cyber insurance landscape,” Paul Schiavone, AGCS regional head of financial lines in North America, said in prepared remarks. The following are some recommendations from the report:
• Businesses need to spot key vulnerable assets and also address areas such as employee vulnerabilities or over-reliance on third parties.
• Businesses should create a cyber security culture and tackle cyber risk using a “think tank” approach – knowledge-sharing from different stakeholders.
• Hidden risks can emerge. M&A activity and changes in corporate structures can impact cyber security and the holding of third party data.
• Companies should decide which risks to avoid, accept, control or transfer.
• Cyber coverage must evolve to become both broader and deeper. Such policies should address business interruption and close gaps between traditional coverage and cyber policies.
• Cyber exclusions in property/casualty policies should become more common. But standalone cyber insurance will keep evolving as the main source of comprehensive cover, addressing demand from industries including telecommunications, retail, energy and transport sectors.
Without a doubt there is a great deal of work to be done in this area of concern. These recommendations appear to be sound and if implemented will help businesses to protect their overall operations.
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