Increasing 'silent cyber' exposure highlights need for standalone products: S&P

The cyber insurance market is "underdeveloped", lacking in standalone products that will be able to meet expected future demand, even as the exposure to silent cyber and losses from attacks continue to rise, according to S&P Global Ratings.

S&P's report, titled 'Cyber Risk In A New Era: Let's Not Be Quiet About Insurers' Exposure To Silent Cyber', states that cyber attacks and the resulting financial losses are on the rise, yet many policies do not explicitly include or exclude cyber cover.

Cyber cover is often bundled into existing property or liability insurance policies, giving rise to silent cyber and increasing insurers' exposure to losses from claims.

Even when the inclusion of cyber cover is explicit, a lack of transparency in both the policy's definition of cyber events and its terms and conditions creates uncertainty about the scope of the cover.

S&P believes the development of stand-alone cyber insurance products would reduce the problem by clarifying the scope of the cover. Such products would also be better suited to the complex and dynamic nature of cyber risk.

"Even better would be the development of a stand-alone cyber line of business managed via a cyber center of excellence," it said. "This would have many advantages for insurers, chief among them preventing cyber-related claims accumulating across many different lines of business, as well as the difficulties in handling such claims.

"It would also allow insurers to mitigate the risk of silent cyber, as well as take a centralized and coordinated approach to data collection and research, which is vital for accurately calculating risk-adequate premiums."

The report noted that the pandemic year of 2020 saw a significant change in the complexity and sophistication of cyber attacks and, also in the nature of cyber risks.

According to the Hiscox Cyber Readiness Report 2020, the median cost of a cyber attack rose almost sixfold worldwide between 2019 and 2020.

Yet only 26 percent of the firms sampled in Hiscox's report have a stand-alone cyber insurance policy, S&P noted.

"Most rely on generic insurance policies, or have no cyber insurance at all. The cyber insurance market therefore has huge growth potential, but insurers lack the products to appropriately meet expected future demand."

"Insurers with sophisticated risk management frameworks and those that invest appropriately in cyber expertise are best placed to provide specific cyber insurance products and reap the benefits," it added.

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