Last year 81 percent of large UK businesses and 60 percent of small companies suffered a cyber security breach. In response to this increasing threat, a report published by the UK government and Marsh, one of the UK’s leading insurance brokers and risk advisers, announces new joint initiatives between government and the insurance sector to help firms get to grips with cyber risk; to establish cyber insurance as part of firms’ cyber toolkits, and cement London as the global center for cyber risk management.
The report entitled “UK cyber security: the role of insurance in managing and mitigating the risk” has been produced in collaboration with the UK’s insurance market and a number of top UK companies.
It aims to make the UK a world center for cyber security insurance. In particular, it highlights the exposure of firms to cyber attacks among their suppliers with a key agreement that participating insurers will include the government’s Cyber Essentials certification as part of their risk assessment for small and medium businesses. (Cyber Essentials is a U.K. government-backed and industry supported scheme to guide businesses in protecting themselves against cyber threats.)
Cyber threats are estimated to cost the UK economy billions of pounds each year with the cost of cyber attacks nearly doubling between 2013 and 2014. The report found that, while larger firms have taken some action to make themselves more cyber-secure, they face an escalating threat as they become more reliant on online distribution channels and as attackers grow more sophisticated. It issues a call to arms for insurers and insurance brokers to simplify and raise awareness of their cyber insurance offering and ensure that firms understand the extent of their coverage against cyber attack.
Companies are recommended to stop viewing cyber largely as an IT issue and focus on it as a key commercial risk affecting all parts of its operations. The product of collaboration between government and the sector following a summit held last November, the report recommends that firms examine the different forms of cyber attacks they face, to stress-test themselves against them and to put in place business-wide recovery plans.
The report also notes a significant gap in awareness around the use of insurance, with around half of firms interviewed being unaware that insurance was available for cyber risk. Other surveys suggest that despite the growing concern among UK companies about the threat of cyber attacks, less than 10 percent of UK companies have cyber insurance protection even though 52 percent of CEOs believe that their companies have some form of coverage in place.
Francis Maude, Minister for the Cabinet Office with responsibility for the UK Cyber Security Strategy and Paymaster General, said:
“It is part of this government’s long-term economic plan to make the UK one of the safest places in the world to do business online. The UK’s insurance market is world renowned and we want it to be the same in relation to cyber risks. The market has extensive knowledge and experience of more established risks to help businesses manage and mitigate relatively new cyber risks.
“Insurance is not a substitute for good cyber security but is an important addition to a company’s overall risk management. Insurers can help guide and [create incentives for] significant improvements in cyber security practice across industry by asking the right questions of their customers on how they handle cyber threats.”
Mark Weil, CEO of Marsh UK & Ireland, added:
“While critical infrastructure in regulated sectors, such as banks and utility firms, are used to this kind of risk, most firms are not and their risk management practices are geared around lower-level, slower moving risks. Companies will need to upgrade their risk management substantially to cope with the growing threat of cyber attack, including introducing disciplines such as stress-testing, and creating a joined-up recovery plan that brings together financial, operational, and reputational responses.”
Key findings from the report:
- Insurers can help firms better manage their cyber risks – by asking the right questions and educating clients, insurers can help drive the adoption of cyber security best practice, including Cyber Essentials.
- With initiatives like this the U.K. insurance sector is demonstrating that the UK is the natural home for a growing global cyber insurance market.
- Insurers’ support shows the success of the Cyber Essential scheme – they recognize having Cyber Essentials certification is a valuable indicator of a mature approach to cyber security in SMEs that contributes to the reduction of risk.
- The contributing insurers will incorporate Cyber Essentials into their risk assessment process for SMEs, making it easier for firms to get coverage.
- Firms place cyber among their leading risks in terms of likelihood and severity of impact.
- Banks and national infrastructure organizations are generally better equipped in modeling cyber risks which can be very fast moving and damaging, whereas most other businesses are not as well equipped to deal with this type of “tail risk.”
- Modeling of cyber risk has been difficult due to a lack of available data – however, there are alternative approaches to valuing the risk of cyber attack including the use of stress testing.
- There is a lack of awareness of cyber insurance and certainty about coverage – less than 10 percent of companies have cyber insurance according to recent surveys.
- A lack of data pooling poses a challenge for the insurers in the development of their pricing models and coverage.
- The potential for the aggregation of losses impacting a large number of firms and arising from a single attack, leading to losses across a large number of firms, is a growing concern for insurers.
- The UK insurance market has a history of underwriting large complex risks and is established as a leading market in the provision of cyber insurance.
For insurers and government:
- Participating insurers will include the Cyber Essentials certification as part of their cyber risk assessment for SMEs when backed by a suitable insurance policy in order to improve their supply chain resilience – this will simplify the application process for businesses.
- A new forum will be established by government with the insurance sector, including the Association of British Insurers and Lloyd’s, on data and insight exchange for policy discussions.
- Firms should review their management of cyber risk – effective risk management needs to include a board-level owner for cyber risk, a joined up recovery plan and the use of stress testing to confirm financial resilience against cyber threats.
For insurance brokers:
- Participating insurers will include Cyber Essentials accreditation as part of their risk assessment for SMEs to encourage greater adoption – Marsh will launch a new cyber insurance product for SMEs which will absorb the cost of Cyber Essentials certification for the majority of firms, which the government encourages other brokers to follow
- Brokers should provide firms with a cyber assurance statement to give the board confidence of their comprehensive cover
For the market:
- Lloyd’s will work with UK Trade & Investment to market the cyber capabilities of the London insurance market globally
- a new multi-disciplinary taskforce set up by CityUK, aimed at bringing together different sectors to discuss a joint UK cyber offering related to insurance for export
Source: U.K. Cabinet Office, Department for Business, Innovation & Skills and UK Trade & Investment
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