Automating Cyber Insurance

The cyber insurance field has been attracting the larger insurance world’s attention for over a decade.

There are many expectations from this developing insurance sector, given the growing need for cyber insurance protection as demonstrated by the significant damages caused to companies and organizations worldwide from cyber attacks as well as the evolving regulatory environment.

At the moment, however, the cyber insurance field does not deliver on the expectations placed on it. Sales volumes are lower than expected, and the loss ratio is negative. Cyber insurance is not yet positioned as a central coverage for customers, and a significant portion of the premium is part of larger insurance coverage packages and not derived from stand-alone insurance. This makes it difficult for the product to grow and be positioned as a significant and important coverage area.

As the world becomes increasingly interconnected and reliant on digital infrastructure, the threat of cyber attacks looms large. Organizations of all sizes face potential disruptions, financial losses and reputational damage due to these malicious activities. In response, the insurance industry has recently begun to evolve its risk management and risk transfer approaches, using technology to provide comprehensive protection against cyber risks.

Parametric’s Promise

Parametric insurance, traditionally used in natural disaster coverage, is characterized by predefined triggers and payout structures. Rather than assessing individual losses, it relies on objective data points to determine policy payouts. Cyber parametric insurance applies this approach to the cyber risk landscape, allowing businesses to manage their exposure more effectively.

Parametric triggers in cyber insurance can include various indicators, such as a certain number of compromised records, a specific level of downtime, or an identified cyber attack type.

One of the key components of cyber parametric insurance is the use of real-time monitoring and early warning systems. Insurers can integrate their policies with cybersecurity tools, network monitoring systems, and intrusion detection systems. This integration allows for continuous monitoring of an insured organization’s digital infrastructure. In the event of an attack or breach, early-warning alerts can trigger predefined parametric payouts, ensuring swift financial assistance to mitigate potential damages.

An InsurTech Opportunity

While cyber parametric insurance presents promising opportunities, it is not without challenges. Determining accurate parametric triggers and establishing appropriate payout structures require careful calibration. Insurers must also navigate the complex and ever-evolving cyber threat landscape to ensure their models remain effective. Additionally, the availability and reliability of data sources pose challenges due to the complexity of cyber risk. The risks sometimes change in cycles of minutes. The tools that monitor those risks might not respond correctly and accurately; therefore, it is a challenge to obtain the data, to verify its accuracy, and to update it at any given time. Accurate data is essential for risk assessment and trigger determination.

This is a perfect opportunity for the insurtech world to lead the penetration of a cyber insurance product. There is an acute problem in growth and an almost perfect solution from the technological point of view.

Technology companies are already involved in the development of new products in the field of cyber insurance, which is increasing the sales share of cyber insurance in the world. But there is room for more.

Parametric cyber insurance can be sold in different configurations, such as server failure insurance, child harassment protection insurance, protection of privacy, protection of home networks, coverage for private individuals, coverage for hacking of business pages on social networks, etc.

In addition, one can expect the development of cyber insurance to cover risk in new areas of advanced technology, such as cryptocurrency and generative AI.

The insurtech sector can provide real-time data that continuously demonstrates trends and changes to help carriers better underwrite policies, whether parametric or traditional.

Israel is considered one of the development centers of the global insurance industry. In our ecosystem, there are hundreds of insurance-focused startup companies. In addition to aiding in the development of new products, they are also working on distribution systems so that cyber insurance can be sold in larger volume.

We expect to see a significant increase in collaboration between B2C startups and insurance brokers, since the cyber insurance product in the end, to a significant extent, is a push product. For example, parametric child protection insurance could be purchased when purchasing a mobile phone for the child, when the insurance will also compensate the victim but mainly will activate automatic protections at the expense of the insurance companies.

At the B2B level, this could apply in any number of ways, one of which could be a parametric policy for server downtime purchased via a cloud provider.

In an era defined by escalating cyber threats, cyber parametric insurance emerges as a powerful tool for organizations seeking comprehensive protection. By harnessing technology and leveraging real-time monitoring, early warning systems, and parametric triggers, this innovative insurance approach offers proactive risk management and swift financial assistance in the event of a cyber incident. As businesses continue to embrace digital transformation, cyber parametric insurance stands as a valuable solution to safeguard their operations, reputation and financial stability in the face of cyber risks.