Work From Home, Digital Shift During Covid Drives Cyber Insurance Prices

Flexible work arrangements amid Covid-19 increased the risk of cyberattacks, pushing up insurance costs to cover possible breaches.

The pandemic has altered work processes with a hybrid model. Even as people slowly return to offices, employees continue to log in remotely and are not tied to a single location. That has driven up the frequency of ransomware and distributed denial-of-service attacks.

Cyberattacks in the first half of this year surpassed the total number of cases reported in the whole of 2020 globally, Sanjay Radhakrishnan, chief executive officer at Hero Insurance Broking India Pvt., told BloombergQuint. That has prompted a rush towards seeking insurance protection against such eventualities.

“Currently, less than 1% of the overall insurance industry's revenue comes from cyber insurance in India and this could go up to 3–4% of the total in the next three to five years,” Radhakrishnan said. The Indian cyber insurance market, according to him, has touched approximately Rs 1,000 crore this year.

The growth potential is huge, more so after the pandemic. According to Pankaj Verma, head (underwriting) at SBI General Insurance Co., the cyber insurance market is estimated to grow well beyond the earlier forecast of $1 billion (Rs 7,500 crore) in three years because of the accelerated digital shift.

TA Ramalingam, chief technical officer at Bajaj Allianz General Insurance Co., said all kinds of companies are worried about cyberattacks and threats to their data security. “Unlike large corporations that have special designated teams to manage cyber-risks, small and medium enterprises are increasingly looking for covers.”

What's Covered

Cyber policies cover response costs, business interruption loss and restoration costs. They also provide protection against fines and penalties arising from data breaches and cover for cyber extortion loss.

Besides, they provide crisis communication services and connect insureds or policyholders with professionals who could help navigate through the breach. The insurers may pay for the consultant costs incurred in finding the source of the breach.

Seeking Cover

There has been a 40-45% year-on-year increase in total cyber insurance premiums collected in the ongoing fiscal in India as awareness toward such threats rose, Radhakrishnan said. That’s almost three times the normal insurance industry growth rate.

Bajaj Allianz, Ramalingam said, has witnessed a 30-35% increase in the number of cyber insurance policies sold over the last one year, and expects this trend to continue for the next two-three years.

While the growth came on a low base, it still indicates the challenges companies foresee. And it's a global trend.

According to Moody’s Investors Service, Marsh & McLennan Inc., one of the world’s leading insurance brokers and risk advisers, “reported that the global percentage of its insured with cyber insurance rose to 47% in 2021 from 26% in 2016”.

Radhakrishnan has identified four drivers for cyber insurance growth in India:

The industry’s conscious effort to bring more small and medium enterprises into the fold over the next two to three years.
Covering more retail insurers who are aware of personal security breaches and cyberattacks.
More large organisations opting for such insurance.
A hike in premium prices.

Increased Claims, Rising Premiums

Globally, the demand for cyber insurance has outstripped supply, said Radhakrishnan. “Claim ratios in the U.S. stand between 67-70% today vis-a-vis 44–45% a year ago.”

Moody’s estimated that the combined ratio—total losses and expenses as a share of premiums—exceeded 100% in 2020 globally on standalone policies. While cyber insurance sold as part of a package still generated an underwriting profit in 2020, it said “the standalone cyber insurance product globally was not profitable”.

To offset such losses, insurers have raised cyber insurance premiums.

Entities in education, government, healthcare, construction and manufacturing in the U.S. were subjected to premium hikes of 300% or more, Moody’s said citing insurer Risk Placement Services Inc. “For example, Marsh reported second-quarter 2021 premium increases of 56% in the U.S., 35–40% in the U.K., 20%–30% in Latin America, and sizeable increases in continental Europe and the Asia-Pacific.”

Reinsurance capacities for cyber insurance globally, according to Radhakrishnan, have shrunk.

In India, there are only four or five companies willing to underwrite cyber insurance with large cover limits in the light of increased vulnerability due to changed work situations.

Almost 60–70% of employees are working from home, he said. Companies were not prepared for the cyber-risks associated with this new way of working and are, therefore, putting them in place. “There are policies in place for the work-from-home model as well, but they cost higher than the traditional policies due to the increased risk.”