JLT Re has reported that cyber re/insurance must be expanded to better account for the ‘hidden costs’ of franchise value impact following a cyber breach, which often outstrip the reported losses of affected organisations by mid to high single-digit multiples.
Many re/insurers already offer cyber liability policies that account for reputational risks, but JLT Re maintained that these policies are likely to become an increasingly invaluable and efficient form of risk-financing as the cyber market evolves.
JLT Re’s report pointed to examples like FedEx, whose estimated franchise value loss of $2.4 billion was eight times greater than the reported net losses of $300 million which the company suffered as a result of the 2017 NotPetya attack.
Similarly, Equifax’s $3.0 billion franchise value loss was around 7 times higher than the reported losses from its 2017 data breach event, and this trend also holds true for other recent examples, like the attacks on Merck, Target, Sony, Yahoo, and Ebay.
The report maintained that losses could be mitigated by adjusting existing cyber policies to account for overlooked risks like impending legal fees, business interruption losses, fines & penalties, forensic investigation and PR expenses, notification costs, third party liability claims, and potential franchise value impairment.
Cyber liability exposures are becoming increasingly severe as technology increases global connectivity and malicious actors (such as activists, hostile governments, terrorists, and other criminals), find more efficient ways to access valuable information.
Additionally, while the growth of computer and internet-related technologies often improves business efficiency and security, this growing interconnectivity heightens the probability of contagion and large aggregate losses when cyber breaches, thefts, and attacks occur.
JLT Re places the current annual global costs of cyber or computer and internet related crime, including economic and reputational losses, at close to a trillion dollars.
Premiums for cyber liability coverage have grown from around $1 billion to $3.25 billion over the past five years, and over 130 carriers are now writing coverage worldwide, hoping to take advantage of relatively low accident year loss ratios (46.9% in 2016, according to A.M. Best).
Although take-up rates have been increasing, JLT Re noted that overall market penetration remains very low, particularly outside the U.S., suggesting that the sector continues to represent a very lucrative opportunity for re/insurers with the expertise to tackle it.