Marsh: Insurance in the fickle world of cyber security

06 August 2015 Consultancy.uk

UK companies continue to face significant risks from cyber related crime and effects. In a bid to increase clarity on the kinds of risk, their insurability and the perspective of the industry, Marsh has worked together with the UK Government and insurance companies to create a picture of the current environment and develop a Cyber Essentials scheme that allows firms to mitigate common risks while also creating the beginnings of an assurance basis.

Cyber security continues to be a threat to national, business and personal security, and with the continued presence of risk, the traditional industry taking an interest in risk – insurance - is starting to offer (sophisticated) coverage for cyber-risks. In the ‘UK Cyber Security the Role of Insurance in Managing and Mitigating the Risk’ report, released by Marsh and the UK Government, the state of cyber-security insurance is considered in relation to business activity. The report aims at identifying ways in which insurers may provide a positive impetus for improving cyber security.

Risking insurance
The report highlights a number of incentives that insurance can introduce to businesses. By creating a cost for premiums, and the possibility of reduced premiums against improving security conditions, a motivation is created for businesses to meet or exceed security standards. Insurers looking to mitigate their own losses will provide businesses with up-to-date knowledge of incidents or near misses that could affect their business. Finally, the long history of insurance risk assessments mean that insurers already have powerful analytic tools to create viable risk profiles of threats – which have similar profiles to other tail risks (low frequency, high impact events).

Risk profile for large businesses

Risk profiles
Insuring risks requires some grasp of their frequency and effect, as well as creating the kinds of products that businesses actually want or need. The risk profiles between company types differs significantly. According to the research, larger organisations are more likely the owner and developer of intellectual property, for instance, and therefore more likely to be affected by its theft.

In terms of probability and highly impactful, the loss of intellectual property rates highly for large companies, followed by liability following the violation of privacy laws or other privacy events. Damage to reputation is also considered a harmful and likely risk by the risk profile.

For small businesses the biggest risks come in the form of network or business interruption, fraud, privacy events, and damage to software. Smaller risks are related to reputational loss and IP theft. Physical asset damage, where hackers take control of a physical device to destroy it, remains in the current context a small risk.

Risk profile for SMEs

Mitigating risk and insuring possibility
To protect businesses from common cyber threats, the UK Government and the insurance industry have developed a ‘Cyber Essentials scheme’. The scheme provides a clear statement of the basic technical controls all organisations should implement to mitigate the risk from common internet-based threats. It also provides a qualification that allows firms to demonstrate to customers, creditors, insurers, and others that they have taken essential precautions against cyber risk.

The insurance industry is also coming with cyber-security coverage. However, uptake has so far been patchy. Marsh’s report shows that while 52% of large organisations believe they are covered for cyber security events, 10% actually have coverage and only about 2% of UK businesses are insured for cyber-crime. One of the problems with the insurance of cyber threats is that the products are often highly complex as a result of which businesses not fully understand the kinds of risks that can be assessed or protected against via insurance.

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Boards of top UK firms must do more on cyber-awareness

06 March 2019 Consultancy.uk

A new report released by the UK Government has found that UK businesses need to do more to build awareness in their firms, if they are to fend off cyber-attackers. The study found that an all-time high of 72% of businesses now see cyber-threats as a top risk, but just less than half of UK boards do not have a comprehensive understanding of the critical assets at risk from cyber-attacks.

Digital technology has revolutionised modern business, with a rate of innovation present in many companies that arguably eclipses that of the industrial revolution. The huge opportunities presented by technology mean that many firms have rushed to digitalise their offerings; but while this means they are able to take advantage  of the latest trends, it has also opened innumerable doors for cyber-criminals looking to use technology to loot corporations from across the globe.

Illustrating the extent to which cyber-crime has boomed in the last decade, in the final quarter of 2018, a study commissioned by Bromium and presented by Dr. Michael McGuire at RSA found that the cyber-crime economy has grown to an estimated $1.5 trillion dollars annually. That is only a conservative estimate – but that conservative figure alone is so large that if it constituted a national GDP, instead of a collection of digital frauds, it would be the world’s 13th largest economy.

Amid this state of play, it is easy to see why cyber-security has become one of the key watchwords of any board room in the 21st century. The cyber-security consulting segment has boomed, with the world’s 10 largest operators in the segment bringing in more than $11 billion in related fees, as businesses tap external expertise to help find areas where they can improve their defences. As noted by a new UK Government report, the legacy of this spike in consulting activity is that almost all UK businesses now have a cyber-security strategy, with only 4% admitting otherwise. 

Cyber threats are increasingly seen as high risk in comparison to other risks that businesses face

This comes at the end of a sea-change in attitudes toward cyber-security over the last five years. According to the 2018 FTSE 350 Cyber Governance Health Check, in 2013, the largest minority of businesses felt cyber-threats represented a low operational risk, at 38%, compared to just 25% who saw it as a very high group risk. Now, the two opinions have seen a dramatic reversal, with only 6% seeing cyber-security as a low threat, compared to a huge 72% of businesses which see it as a very high risk. Considering the high profile hacks that occurred in the interim, this is perhaps not that surprising.

However, while cyber-awareness in general is at an all-time high, this is where the positive news ends. According to the study, while the vast majority of firms in the UK have a cyber-security plan in place, only 46% have a dedicated budget to enact that strategy. Should their financial positions change rapidly in the near future – something increasingly likely with the prospect of a No Deal Brexit still looming over the horizon – then that plan could fall by the wayside, with the funding shortfall exposing firms to even greater financial damage in the near future.

The study, released by the Department for Digital, Culture, Media & Sport (DCMS) in March 2019, was undertaken in partnership with Winning Moves and support from EY, KPMGPwC and Deloitte, working with their FTSE 350 clients to participate in the survey. The study also found that while most businesses have incident response plans, most are not testing them: 95% of FTSE 350 businesses have an incident response, but a mere 57% test their crisis incident response plans regularly. With companies facing the consistently evolving threat of cyber-attacks, that could leave major chinks in their armour undiscovered until it is too late.

Board understanding of business-critical assets

Similarly, many firms also seem oblivious to the threat posed by their wider supply chains, which if left unchecked, provide hackers with a blank cheque to access company data. A majority of boards do not recognise supply chain risks beyond the first tier, as 77% of FTSE 350 businesses told researchers they did not recognise the risks associated with businesses in the supply chain with whom they have no direct contact.

Meanwhile, almost half of UK boards do not understand the critical assets at risk from cyber-attacks. 54% of businesses in 2018 rated the board’s understanding of critical information, data assets and systems as comprehensive, while of that, only 12% said understanding was the best it could be. This compares to 43% of boards in 2017 and 32% in 2015/16 stating they had a clear understanding, suggesting that key progress is being made, but also that there is a great deal of room for improvement.

Commenting on the findings, Digital Minister Margot James said, “We know that companies are well aware of the risks, but more needs to be done by boards to make sure that they don’t fall victim to a cyber-attack. This report shows that we still have a long way to go but I am also encouraged to see that some improvements are being made. Cyber-security should never be an add-on for businesses and I would urge all executives to work with the National Cyber Security Centre and take up the government’s advice and training that’s available.”