Cyber Insurance – an essential part of risk mitigation strategy?

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Blog post by Hugh Deura

Advancement of technology is deriving proliferation of threat landscape rapidly which extend attack vectors. With proliferation of automated tools available for cyber criminals; it’s not a matter of “if” but “when” there will be a security breach. There are two types of organizations in this category, those who’ve been hacked, and those who don’t know they have been hacked. The likelihood that your organization is next is not very unlikely. Is your organization prepared for a target of information security breach?

That will depend on if you have an operational Security Program which is functional enough to manage risk of a potential security breach. Now, the million-dollar question may be, is your Security Program  resilient enough to sustain the risk and can it afford to absorb losses for future security breach. The security threats are evolving on daily basis and there are unknown threats like zero day threats where you need to add cyber insurance (which provides coverage from losses resulting from data breach or loss of confidential information) as a part of risk management strategy to tackle unnecessary disruptions to your business. As a part of risk management program, organizations regularly determine which risks to avoid, accept, control or transfer. This where transferring risk to cyber insurance take place and it can compensate for some residual risk.

Some may argue that they got liability insurance, which should cover security breach. Those days are behind us when organizations thought liability insurance were enough to cover the security breaches. Sony thought their general liability insurance covered them, but the court confirmed that policy did not have specific clauses to cover the security breach which was estimated $170M. Another highly publicized security breach of Target cost the retailer about $348M but the retailer had only $100M in cyber insurance coverage from multiple underwriters.

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Cyber-insurance is an insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities. Cyber insurance purchased by an insured (first party) from an insurer (the second party) for protection against the claims of another (the third party). The first party is responsible for its own damages or losses whether caused by itself or the third party.

Cyber insurance may offer services products and countermeasures to protect business from known and unknown risks. There are now mandatory breach notification state laws (in many states) and regulation (HIPAA) which require breach notification. In services area cyber insurance may help organization to cover the cost of notifications and sometime may notify on behalf of an organization. The breach notification service may be necessary for SMB’s to acquire due to lack of necessary in-house resources. Depending on your business, few other items you may want to consider under cyber insurance are data restoration cost, payment of ransom, identity theft protection and reissuing of cards, potential downtime due to DDoS and potential regulatory fines.

How does a second party, an insurance company determine that first party premium (an amount to be paid for an insurance policy) and even decide that first party is insurable. The insurance company will look at organization’s security posture maturity based on industry standards and regulations (ISO, NIST, CSC, CSF) and determine if their Security Program is worthy of cyber insurance. Based on the existing security posture of an organization the second party will determine the risk they are willing to take and first party will determine the cost they are willing to pay for the premium. In the above example of Sony and Target may be able to absorb losses of the breach which were not covered by insurance but for some SMB’s these losses may be business limiting.

A point–in-time evaluation of an organization’s information security posture in constantly evolving, threat landscape only increases the challenge of insurance company to determine the first party premium. The insurance company may require a continuous feed to an organization security posture dash board which may also include but not limited to monitoring of security incident response on regular basis. Before making a decision on cyber insurance premium, an insurance company should utilize an in-house expertise or collaborate with InfoSec consulting organization to evaluate the frequency and severity of cyber threats facing an organization information security management system.

At end of the day, cyber insurance is a proactive security measure to counter potential data breaches and network security failures. Routinely, organizations are willing to spend money on security initiatives after the breach which is reactive action. Proactive security measures such as (developing sound security policies, compulsory cloud security, continuous monitoring, strong security awareness, effective BCP, proactive patching, resilient incident response plan…) may help not only to reduce the overall risk landscape but can assist in lowering the cyber insurance premium. Proactive information security program which include but not limited to the basic cybersecurity measures may require acquiring cyber insurance. Insured organization (first party) may need to keep up with the basic cyber security measures to prevent voiding the coverage. When a functional and operational information security program which has a clear definition of an organization risk threshold becomes a priority, it can minimize potential risk of security breach and should be able to absorb losses for future security breach with cyber insurance as a part of risk management strategy.

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