Cyber Insurance – Silver Bullet?

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If you could just insure yourself against cyber attacks, would you be less demanding about implementing security measures?

Cyber insurance is a thing. You can insure your business against cyber attacks. Your premium will depend upon the size of your business, the security measures in place, and your degree of exposure.

That’s tempting. If I could just insure myself against cyber attacks, can I be less demanding about implementing security measures?

This is a perfectly valid approach of course. Risk transfer, which includes insurance, is a completely valid way of dealing with a cyber security risk. The other alternatives are risk avoidance (which would include applying preventative measures) and risk acceptance (which involves dealing with risk events as they happen).

Let’s look at the insurance option in more detail. Insurance involves your paying a premium to an insurance company, which will, if an incident occurs, indemnify you for your loss. Great! But here’s the small print:

  • All insurance contracts require you to act as if uninsured. If you expose yourself to more risk because you’re insured, the insurer may refuse to pay after an incident.
  • The insurance will only indemnify you for the cover you have purchased. Many of the costs of an incident may not be covered—for instance, reputational damage, senior management time, regulatory fines, and court costs.
  • If you cut down on cyber security spending you will have to inform your insurer of this, and this may increase your insurance premium.

On the other hand, you can always balance the cost of insurance against the cost of a cyber security measure.  If the cost of the measure is more than the increase in premium, is it worth doing?

To summarize, cyber insurance has its place in an organization’s armory, but I suggest it is most effective as a backstop for exceptional incidents rather than a substitute for everyday good cyber security.

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