The proliferation of cybercrime over the last two decades has led to the development of a relatively new kind of insurance: cyber insurance. It is a form of insurance that protects organizations and consumers against financial losses as a result of cybercrime. The bad news for insurance companies is that cyber insurance underwriting is a risky business.
Underwriting any form of insurance carries with it a certain level of risk. Insurance companies constantly face the risk of paying out more than they collect in premiums. Meanwhile, policyholders take the risk of never realizing the full value of their insurance investments. So risk is unavoidable no matter how you look at it.
That said, underwriting cyber insurance is subject to some unique challenges that do not apply to other forms of insurance. Those challenges underscore the value of companies like DarkOwl, companies whose darknet intelligence provides underwriters with critical information they need to mitigate risk.
The Basics of Cyber Insurance Underwriting
In the insurance industry: underwriting is the process by which insurance companies assess risk, exposure, and potential losses. The underwriting process informs decisions relating to coverage, limitations, and premiums.
In terms of cyber insurance, underwriting needs to account for the many challenges inherent to cybercrime and threat intelligence. The challenges can make underwriting difficult to justify in some cases.
A Closer Look at the Challenges
A closer look at some of the challenges makes clear why cyber insurance underwriting is so risky. With each challenge comes the need to justify underwriting a policy. And with each justification, an insurance company needs to accept a certain amount of risk.
Here are the most common challenges cyber insurance underwriters have to account for:
1. Data Access
One of the primary challenges to cyber insurance underwriting is obtaining good, quality data. Underwriters need access to relevant data they can trust in order to make sound decisions. Unfortunately, the vast amount of data underwriters are exposed to can be overwhelming.
In addition, underwriters access historical data to assist in risk analysis. Yet the data is not as voluminous and robust compared to other forms of insurance underwriting.
2. Evolving Cyber Threats
Understanding a policyholder’s risk profile is another challenge. Cyber threats are constantly evolving, so an organization’s posture and risk potential can change on a dime. This makes it very difficult for underwriters to stay up to date on the threat landscape.
3. Supply Chain Risks
Organizations with a plethora of third-party relationships are at higher risk from cyber threats along the supply chain. Underwriters need to account for supply chain vulnerabilities along with the systemic risks associated with multiple organizations being attacked simultaneously.
4. Risk Mitigation
Mitigating risk is key to preventing significant losses. Underwriters play a role in helping policy holders understand and implement mitigation strategies. But mitigation is not always straightforward in the cybersecurity realm. This makes underwriters nervous.
5. Regulatory Compliance
Both cyber insurance and cybersecurity itself are subject to regulatory compliance. Moreover, regulations are constantly being tightened by jurisdictions around the world. Insurance underwriters need to be sure to comply with regulations in all appropriate jurisdictions. Likewise, they must ensure that their policyholders are in compliance.
Not for the Faint of Heart
Cyber insurance underwriting is definitely risky business. It’s also not for the faint of heart. Any insurance company willing to take on cyber insurance need to be willing to participate in what is a fledgling industry that is still learning its way. Cyber insurance will reach maturation eventually. For now, however, it is still a learning process for underwriters and policyholders alike. That’s what makes it so risky.