Cyber Insurance and Risk Management

This assignment delves into the realm of cyber insurance, examining its various aspects. It analyzes the benefits and limitations of cyber insurance, highlighting its role in mitigating cyber risks. The impact of cyber insurance on risk management strategies is also discussed, along with the increasing demand for this type of coverage in our increasingly digital world.

Running head: CYBER INSURANCE 0
Cyber Insurance

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Executive Summary
Cyber insurance is referred to policies which mitigate the risk of Internet-based threats faced
by individual and corporations by covering the liabilities and reimbursing the expenses. The
use of cyber insurance in companies is growing rapidly along with the risk of online and
internet-based services. Modern corporations face various risks relating to cyber security such
as hacking, viruses, malware, denial of service attack, errors and omissions, online data
breach and others. The enterprise prefers to buy cyber insurance due to its numerous benefits
such as reimbursement of forensic expenses, protection from data loss, fulfillment of
notification requirements, covering liability of errors and omissions, reimbursement of lost
device expenses and others. There are several disadvantages of cyber insurance as well such
as lack of policy options, loss of data in case backup was not made and limits of policy
coverage. Various recommendations can be implemented by firms while selecting a cyber-
insurance policy to address its issues. For example, companies should analyse the business
structure and insurance requirement before purchasing a policy, evaluate basic cybersecurity
requirements while evaluating insurance policies, invest in data backup application, and
ensure that policy cover first and third party claims. Modern corporations should purchase a
cyber-insurance policy since it protects them from various first and third party claims and
mitigate the risk of cyber-attacks.

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Table of Contents
Introduction................................................................................................................................3
Cyber Insurance.........................................................................................................................4
Requirement of Cyber Insurance...............................................................................................4
Types of Cyber Insurance..........................................................................................................4
Advantage of Cyber Insurance...................................................................................................5
Disadvantage of Cyber Insurance..............................................................................................6
Recommendations......................................................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
Cyber Insurance is defined as insurance policy which cover first and third party losses that
are caused due to malfunction of information technology systems or computer-based attacks.
Cyber Insurance policies mitigate the risk face by people and corporations from cyber-attacks
or malfunctioning of information technology systems (Romanosky et al., 2017). In recent
years, cyber insurance policies cover a large variety of information technology losses such as
errors, extortion, data destruction, hacking, defamation and many others. The popularity of
cyber insurance is continuously growing along with the risk of cyber-attacks. The number of
cyber-attacks has grown substantially in past decade, and many corporations have suffered
significant financial losses. Therefore, the role of cyber insurance in the protection of
individual and companies has increased along with the number of corporations that provide
this facility. This report will focus on analysing cyber insurance and reason for its increasing
requirement in modern corporations. The report will discuss various types of cyber insurance
and their use in modern companies. Further, the advantages and shortcomings of modern
cyber insurance policies will be discussed and recommendation will be given in the report to
address its issues.

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Cyber Insurance
Cyber Insurance is referred to insurance for various cyber risks and liabilities which help
corporations in mitigating risk exposure by offsetting expenses involved that recover
company’s data in case of cyber-related security breaches or other attacks. As per the
research of PwC, more than one-third of US-based corporations purchase some type of cyber
insurance to mitigate the risk of cyber-attacks (Lindros and Tittel, 2016). PwC study provided
that by 2020, the market for cyber insurance will worth more than US$7.5 billion (PwC,
2016). A large number of popular insurance companies provide the facility of cyber insurance
such as Travelers, Allianz, and Chubb Philadelphia.
Requirement of Cyber Insurance
In today’s competitive world, almost every business is dependent on online data that is
crucial for their development and use of public domain increase the potential threats of fines,
interruption, and compensation (Zhao, Xue and Whinston, 2013). With the growing threat of
cyber-attacks, corporations prefer to choose cyber insurance option since it protects
company’s data and servers from first and third party attacks. In Australia, CFC dealt with
400 claims in 2016 in which 20 percent were related to electronic crimes and more than one
third were data breaches (Ismail, 2017). Following are the threats face by modern companies
which increases the requirement of cyber insurance.
 Hacking
 Denial of service attacks
 Electronic commerce
 Viruses
 Malware
 Internet services
 Online data breach
 Infringement of Intellectual property
 Errors and Omissions

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Types of Cyber Insurance
With the growing popularity of Internet-based services and social media sites, the risks face
by modern companies have grown as well. Organisations face a number of issues (as
discussed above) while operating their businesses. Following are some example of cyber
insurance policies that protect companies from different types of cyber risks.
Cyber Security Insurance - It is also called Crisis Management Expense Insurance and
Privacy Notification Insurance, and it covers first-party damages face by companies. The
insurance deals with various costs faced by corporations after cybersecurity breaches such as
hiring of public relation agent, hiring of forensics expert, notification charges, monitoring
costs and others (Elmaghraby and Losavio, 2014).
Extortion - It reimburses various expenses relating to the investigation in cyber-attacks or
payment to extortionists who threaten to release sensitive data.
Hacksurance - It protects companies from hacking and various other cyber-attacks.
Technology Errors and Omissions Insurance - It is also known as Professional Liability or
E&O and it over companies that sell technology products and services. It covers any
negligence claim of the client that is caused due to an employee’s omission or machine error.
Advantage of Cyber Insurance
The main benefit of cyber insurance is that it protects corporations from various internet
related liabilities, save company’s online data and reimburses various expenses. Following
are some example of how cyber insurance is beneficial for modern corporations.
1. Protection from Data Loss: Modern companies store online data which include
sensitive information about customers, employees, and corporation. The firm can be
held liable for protected health information (PHI) or personally identifiable
information (PII). A cyber insurance policy protects companies from liability in case
any breach occurred in company’s database.
2. Error and Omissions: A cyber insurance policy covers errors or omissions claims
that cause while the company provides its services like software, consultancy,
architects, engineers, and others (Bandyopadhyay and Mookerjee, 2017).
3. Lost Devices: Organisations deal with a large number of electronic devices such as
laptops or smartphones that often leave office premises and may be stolen or

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compromised. In case of breach, cyber insurance policy protects unauthorised access
to devices and protects the confidential information. A cost of laptop or smartphone
can be more since it includes legal charges, investigation and various other costs
(Adeleke, Ibiwoye and Olowokudejo, 2012).
4. Forensics: In case of data breach or cyber-attack, computer forensics teams analyses
the situation which is considerably expensive for corporations. A cyber insurance
policy reimburses the forensics expenses, and it also provides coverage for potential
business loss or other expenses.
5. Media Liability: The injury claims cause due to infringement of copyrights,
intellectual property, trademark, and others. Due to the popularity of social media
sites and internet services, modern corporations face various issues relating to media
infringement, and cyber insurance protects companies from damage claims.
6. Notification Requirements: It is mandatory by law for a company to notify
customers of a breach which can be significantly expensive for companies. A cyber
insurance corporation provides the facility of counseling and reimburses the costs
related to the issue (Pal et al., 2014).
Disadvantage of Cyber Insurance
Following are shortcomings in cyber insurance policies that negatively affect a company.
a) Limits on Coverage: One cyber insurance policy does not cover entire liabilities, and
one policy might cover one type of loss and not another. For example, a policy might
not cover third-party damages, such as unauthorised access or damage caused due to
another party, which increase the cost of the corporation even when it has a cyber-
insurance policy (Kam, 2012).
b) Loss of Data: If the company fails to update its security patches, firewalls, and
antivirus system and if the corporation did not have a backup of its data, then such
data is gone, and cyber insurance cannot protect such data.
c) Limit of Choice: There are fewer choices available for companies when it comes to
cyber insurance policies. Many enterprises prefer to use providers that they have an
existing relationship with, but they might not provide an appropriate policy which
protects corporations from cyber-attacks (Yang and Lui, 2012).

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Recommendations
Following recommendations can assist corporations in selecting right cyber insurance policy
which protects them from cyber-attacks.
 Different corporations should identify their unique cybersecurity risks and select a
policy to cover such threats. For example, bank and retailers should buy different
cyber insurance policy to protect different risks (Nocera, 2014).
 The companies should evaluate their existing policy to ensure that it covers different
risks such as first and third party claims.
 The firms should focus on basics while purchasing a cyber-insurance policy to ensure
that it covers the threats faced by the enterprise. Many corporations buy policies
which they do not require, and they increase their expenses (Fouche, 2016).
 The corporations should consider the interest of each stakeholder while purchasing a
cyber-insurance policy to ensure that it protects their interest.
 The companies should invest in data backup software to ensure that their data is
secured even after a breach because cyber insurance policy cannot recover lost data.

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Conclusion
Conclusively, the role of cyber insurance has grown substantially in modern corporations
because the use of internet and online based services has increased as well. Cyber insurance
policies protect companies from various threats such as hacking, malware, virus, denial of
service attack, infringement of intellectual property and others. There are various benefits of
cyber insurance such as protection from loss of data and devices, reimbursement of costs
such as forensics, media liability, error and omission liability and others. The shorting
comings of cyber insurance include limits on coverage, lack of choice, and loss of data.
While selecting a cyber-insurance policy, the companies should identify their unique risks,
evaluate existing policies, consider the interest of each stakeholder, and invest in data backup
application to take full advantage of the service. Modern companies should purchase a cyber-
insurance policy which is suitable for their business in order to ensure that they are protected
against various cyber-attacks which sustain their future growth.

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References
Adeleke, I., Ibiwoye, A. and Olowokudejo, F. (2012) Cyber risk exposure and prospects for
cyber insurance. International Journal of Management and Business Research, 1(4), pp.221-
230.
Bandyopadhyay, T. and Mookerjee, V. (2017) A model to analyze the challenge of using
cyber insurance. Information Systems Frontiers, pp.1-25.
Elmaghraby, A.S. and Losavio, M.M., 2014. Cyber security challenges in Smart Cities:
Safety, security and privacy. Journal of advanced research, 5(4), pp.491-497.
Fouche, L. (2016) Understand your cyber risks before selecting cyber insurance. [Online]
LinkedIn. Available at https://www.linkedin.com/pulse/understand-your-cyber-risks-before-
selecting-insurance-leon-fouche [Accessed 18th January 2018].
Ismail, N. (2017) Cyber insurance – a growing requirement?. [Online] Information age.
Available at http://www.information-age.com/cyber-insurance-growing-requirement-
123465018/ [Accessed 18th January 2018].
Kam, R. (2012) The Benefits and Limitations of Cyberinsurance. [Online] Risk Management
Monitor. Available at http://www.riskmanagementmonitor.com/the-benefits-and-limitations-
of-cyberinsurance/ [Accessed 18th January 2018].
Lindros, K. and Tittel, E. (2016) What is cyber insurance and why you need it. [Online] CIO.
Available at https://www.cio.com/article/3065655/cyber-attacks-espionage/what-is-cyber-
insurance-and-why-you-need-it.html [Accessed 18th January 2018].
Nocera, J. (2014) How cyber insurance can help you better manage security risks. [Online]
PwC. Available at http://usblogs.pwc.com/cybersecurity/how-cyber-insurance-can-help-you-
better-manage-security-risks/ [Accessed 18th January 2018].
Pal, R., Golubchik, L., Psounis, K. and Hui, P. (2014) Will cyber-insurance improve network
security? A market analysis. In INFOCOM, 2014 Proceedings IEEE (pp. 235-243). IEEE.
PwC. (2016) Insurance 2020 & beyond: Reaping the dividends of cyber resilience. [Online]
PwC. Available at https://www.pwc.com/gx/en/industries/financial-services/publications/
insurance-2020-cyber.html [Accessed 18th January 2018].

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Romanosky, S., Ablon, L., Kuehn, A. and Jones, T. (2017) Content Analysis of Cyber
Insurance Policies: How do carriers write policies and price cyber risk?.[Online] FTC.
Available at: https://www.ftc.gov/system/files/documents/public_comments/2017/10/00012-
141437.pdf [Accessed 18th January 2018].
Yang, Z. and Lui, J.C. (2012) Security adoption in heterogeneous networks: the influence of
cyber-insurance market. In International Conference on Research in Networking (pp. 172-
183). Springer, Berlin, Heidelberg.
Zhao, X., Xue, L. and Whinston, A.B. (2013) Managing interdependent information security
risks: Cyberinsurance, managed security services, and risk pooling arrangements. Journal of
Management Information Systems, 30(1), pp.123-152.