Cyber insuranceCyberattacks spark cyber insurance boom

Published 28 June 2011

The recent spate of high profile cyberattacks on major corporations has sparked a rush for cyber security insurance; with companies and even local governments seeking financial protection from costly cyberattacks, insurance companies and analysts say demand has increased dramatically of late; some large companies have even taken out insurance policies worth as much as $200 million; local governments like Flathead County, Montana have also purchased cyber insurance

The recent spate of high profile cyberattacks on major corporations has sparked a rush for cyber security insurance.

With companies and even local governments seeking financial protection from costly cyberattacks, insurance companies and analysts say demand has increased dramatically of late.

Kevin Kalinich, the co-managing director of insurance broker Aon Corp.’s professional risk group, said, “When you have a catastrophic type of data breach, then yes…the phones ring off the hook.”

In particular costly attacks like those against Sony and Citibank has spurred interest in cyber insurance as it helps cover against civil suits, fines from the government, as well as administrative costs like issuing apology letters to affected customers.

Hackers infiltrated Sony’s networks and stole personal information from more than 100 million users’ accounts forcing the company to shut down its popular online gaming network for nearly a month. Sony estimates that the attacks could cost $172 million in administrative fees, security upgrades, compensation costs, as well as legal fees.

According to Kalinich less than 5 percent of cyberattacks result in costs of more than $20 million, but an increasing number of companies have purchased insurance plans that protect themselves against such high losses and more. He said some large companies have even taken out insurance policies worth as much as $200 million.

Meanwhile local governments like Flathead County, Montana have also purchased cyber insurance.

County Commissioners recently voted to take out a policy with a $25,000 deductible for $12,707 a year. The plan has a $1 million maximum payout.

 

Commissioners approved the purchase at the urging of Rae Ann Campbell, the county’s human resources officer, and Vicky Saxby, the county information Technology Director.

Saxby argued that the insurance would help cover the costs of any data breach as the county’s existing general liability insurance does not cover any cyber issues.

The decision makes Flathead County among the first local governments to have cyber insurance, but Brad Salonen of Western States Insurance, the county’s insurance provider, believes that within five to ten years, “everyone will have it.”