Public agencies and businesses around the globe are making cyber risk their highest priority. Insuring companies against data breaches is becoming an enormous industry even as its promising role and impact in security operations continues to unfold. North American policyholders dominate the market, however, Europe and Asia are expected to grow swiftly over the next five years due to new laws and significant increases in targeted attacks, such as ransomware.
While the average cost of a data breach declined by 10% from $4 million in 2016 to $3.62 million in 2017 worldwide, the United States experienced a 5% increase, according to an IBM Security and Ponemon Institute study. Health care is the most expensive industry for data breaches for the seventh consecutive year, costing health care organizations $380 per record, more than 2.5 times the global average of $141 per record across industries. The high likelihood of experiencing a significant breach is especially disturbing: in the two years following a recent study, the likelihood of a “material breach involving 10,000 lost or stolen records” stood at 26 percent.
Deciding how much cyber insurance to buy is no trivial matter, and the responsibility rests directly with the Board of Directors (BoD). Directors and executives should have the highest-level view of cyber risk across the organization, and are best positioned to align insurance coverage with business objectives, asset vulnerability, third party risk exposure, and external factors. Not all breaches are limited to data exposure: ransomware, APTs, and DDoS attacks can also interrupt operations.
So, how much does your organization stand to lose from a supply chain shut down, a web site outage, or service downtime?
Recent data points from breach investigations help frame the discussion around risks and associated costs. Following a variety of high profile breaches helps ensure that your projected coverage requirements match up with reality. Be sure to follow older cases for deeper insight into the full expense compared with insurance payout; related costs and losses are often incurred for years afterward due to customer and market response as well as legal and regulatory enforcement actions.
In late 2013, Target Corporation suffered a very public breach that resulted in the resignation of their CEO, a 35-year employee. Target had purchased $100 million in cyber insurance, with a $10 million deductible. At last count, Target reported that the breach costs totaled $252 million, with some lawsuits still open.
Home Depot announced in 2014 that between April and September of that year cyber criminals stole an estimated 56 million debit and credit card numbers – the largest such breach to date. The company had procured $105 million in cyber insurance and reported breach related expenses of $161 million, including a consumer-driven class action settlement of $20 million.
These cases illustrate the need for thoughtful discussion when deciding how much breach insurance to buy. Breach fallout costs depend on multiple factors, are not entirely predictable, and can rise quickly due to cascading effects. Cases in point: the bizarre events surrounding Sony’s breach and the post-breach evisceration of Yahoo’s pending deal with Verizon.
Organizations need to review their security posture and threat environment on a regular basis and implement mechanisms for incessant improvement. The technology behind cyber security threats and countermeasures is on a sharp growth curve; targets, motives, and schemes shift unpredictably. Directors may find it useful to assess risk levels and projected costs for multiple potential scenarios before cyber insurance amounts are decided upon.
Most policy premiums are currently based on self-assessments. The more accurate the information provided in your application, the more protected the organization will be. Most policies stipulate obligations the insured must meet in order to qualify for full coverage; be sure to read the fine print and seek expert advisement.
A professional security assessment can pinpoint areas in need of improvement. If you claim to be following specific protocols, but a post-breach investigation finds they were poorly implemented, circumvented, or insufficiently monitored, the insurer may deny or reduce coverage. Notify your insurance provider immediately about significant changes to your security program.
Review policy details regularly to ensure they match prevailing threats and reflect the evolution of crimeware and dark web exploits. Cyber insurance carriers continually adjust their offerings based on risk exposure and litigation outcomes.
As the industry matures, cyber insurance policies will become more standardized. For now, it’s an evolving product in a dynamic market; boards and executives need to keep an eye on developments. Simultaneously, they must maintain a high degree of visibility across their security program. Checking off compliance requirements, writing policies, and purchasing security software isn’t sufficient.
At AsTech, our advice is to lead from the top. Organizations need to ensure risk assessments are thorough and up-to-date, policies are communicated and enforced, and security technology is properly configured, patched, and monitored.
Turning a blind eye to cyber threats and organizational vulnerabilities can have disastrous consequences. Cyber insurance may soften the financial blows, but it only works in conjunction with an enterprise-wide commitment to security fundamentals and ongoing risk management.