The rise of cyber risk and the gaps in cyber insurance: Actuary Institute Green Paper

The Actuary Institute’s new Green Paper Cyber Risk and the Role of Insurance highlights the increasing problem of cyber security and the growing urgency to address the gaps in insurance protection.

Cybercrime is globally on the rise.

According to the Actuary Institute’s Green Paper, the number of ransomware attacks was reported to be 623 million globally in 2021. With 20 attacks occurring every second, this represents a 300% increase compared to 2019.

In Australia, the total reported cyber losses amounted to $33 billion in the past financial year, impacting private and public sectors of all sizes.

Key gaps in cyber security protection:

• Severe shortage of qualified cyber security personnel. The paper states that a five-fold increase in students studying cyber security courses is required to meet the demands of protecting Australia cybersecurity infrastructure. In addition, curbing the current job shortage will still see a time lag in building capabilities and skillsets.
• Limited understanding of cyber insurance among Boards. Boards are limited in their understanding of insurance, and in particular worry about giving up control to the insurer in a cyber event. The paper flags that it is a misconception that insurers become ‘shadow directors’ who take over management of a cyber insurance claim.
• Limited education on cyber risks among SMEs. The paper quotes ICA research which indicates that smaller firms are increasingly becoming the target of cyber attackers. However, only 20 per cent of SMEs have cyber insurance, compared to 35 to 70 per cent of larger organisations.
• Achieving sufficient capacity and profitability in the market. The past two years have seen reduced appetite among insurers, with cyber insurance having experienced claim losses for the first time in its 20-year history. This has led to limited market capacity and growing premiums.
• Challenges in managing accumulation risks. With the lack of geographical boundaries in cyberattacks potentially resulting in significantly large-scale losses, insurers in challenged in the management of accumulation risk.
• Hesitancy in purchasing insurance solutions. Many organisations fear that purchasing cyber insurance may lead them to become bigger targets for cyberattacks.

The Actuary Institute argues that stronger collaboration between government, businesses and insurers is needed to close the current gaps in cyber insurance protection and create more robust risk management frameworks.

For more information and to read the Actuary Institute’s Green Paper, click here.