I wrote previously about how cyber insurance can be a useful addition to your risk management program.
Unlike more established insurance products, cyber doesn’t have the same amount of historical data, so approaches to underwriting this risk can vary. Models to quantify it usually rely on a number of high-level factors (the industry your organisation is in, geography, applicable regulation, annual revenue, number of customers and employees, etc.) and questions aimed at evaluating your security capabilities.
You are usually asked to complete a self-assessment questionnaire to help the underwriter quantify the risk and come up with an appropriate policy. Make sure the responses you provide are accurate as discrepancies in the answers can invalidate the policy. It’s also a good idea to involve your Legal team to review the wording.
While you can’t do much about the wider organisational factors, you could potentially reduce the premium, if you are able to demonstrate the level of security hygiene in your company that correlates with risk reduction.
To achieve this, consider implementing measures aimed at mitigating some of the more costly cyber risks. What can you do to prevent and recover from a ransomware attack, for example? Developing and testing business continuity and disaster recovery plans, enabling multi factor authentication, patching your systems and training your staff all make good sense from the security perspective. They can also save your business money when it comes to buying cyber insurance.
If possible, offer to take the underwriter through your security measures in more detail and play around with excess and deductibles. Additionally, higher cover limits will also mean higher premiums and these are not always necessary. Know what drives your business to get cyber cover in the first place. Perhaps, your organisation can’t afford to hire a full time incident response manager to coordinate the activities in the event of a breach or manage internal and external communication. These are often included in cyber insurance products, so taking advantage of them doesn’t necessarily mean you need to pay for a high limit. While it is tempting to seek insurance against theft of funds and compensation for business interruption, these can drive the premium up significantly.
It’s worth balancing the cost of the insurance with the opportunity cost of investing this sum in improving cyber security posture. You might not be able to hire additional security staff but you may be able to formulate a crisis communication plan, including various notification templates and better prepare with an incident simulation exercise, if you haven’t already. These are not mutually exclusive, however, and best used in conjunction.
Remember, risk ownership cannot be transferred: cyber insurance is not a substitute for security controls, so even the best cover should be treated as an emergency recovery measure.
Cyber insurance is a hot topic of many debates today. It is believed to be the long-awaited cure for high-impact security risks, especially in light of constantly evolving privacy legislation and disclosure obligations. But what actually is it?
Simply put, cyber insurance is a tool intended to mitigate the loss from information security incidents. The decision to use it, however, should be based on rigorous risk management. Firstly, a company performs a risk assessment, during which information security risks are identified and logged. This can help the business to prioritise from a cost-benefit perspective. The company can then choose a risk treatment option: it can decide to accept, mitigate, avoid or transfer the risk.
Mitigation and acceptance are quite common approaches in the information security domain. Security professionals can implement a countermeasure to reduce the likelihood and impact of the threat. However, if it is not feasible to do so for economic reasons then the risk can be accepted. In the case of avoidance, businesses can decide not to perform the activity that exposes them to the risk. Lastly, information security risk can be transferred to a third party. This is where cyber insurance can be useful.
The ownership of risk, however, can’t be transferred fully. In the case of cyber insurance, it is more about risk sharing. Both parties should understand their accountability, liability and risk allocation.
Cyber insurance should be cost-effective. But how can one calculate the cost of such product? To understand this, we might want to look how insurance brokers work in more traditional areas. Insurance companies rely heavily on historical data, demographics and averages. The car insurance industry, for example, has evolved over many years to collate accurate statistics of the frequency of accidents per driver based on age, season, car type, country etc. in order to predict the likelihood and cost impact on a case by case basis.
For cyber insurance, however, historical data is not always readily available. Understanding the business becomes key to determining the cost. There are many parameters which can define the premium: size, territory, type of business, human errors and other unknown factors can all contribute to the price. Premiums rely on the maturity of the information security programme.
But is it possible to reduce this cost?
Yes, there are many ways to achieve cost reduction. In general, it is required for the business to demonstrate that some measures have already been taken to reduce the likelihood and impact of a potential cyber security incident. Certifications, such as ISO 27001 can be one of the ways to do so. Or for instance, having an incident response team can drive the premium down. Otherwise the insurer would have to provide its own service, hence charge the client extra. In a nutshell, premiums are never fixed. It has to be a dialogue between the company and the insurance broker. If a company adequately understands its risk, the insurance premium can and should be negotiated.
It is important to mention the importance of a holistic approach to risk treatment. Implementing controls to prevent security incidents and purchasing cyber insurance are not mutually exclusive strategies. If cost-effective, risk management and treatment should be a combination of both methods. Consider health and safety policies as an example. Safety coordinators invest in fire extinguishers minimise the impact of fire. Just like information security professionals deploy firewalls to keep malicious intruders out of the company’s network. Additionally, the building is also almost always insured. Maybe it is time to consider a similar approach to information systems.
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