The joint report aims to help firms get to grips with cyber risk and establish cyber insurance as part of any firms’ cyber tool-kit.
The report, UK Cyber Security: The Role of Insurance in Managing and Mitigating the Risk, has been produced in collaboration with the UK’s insurance market and a number of top UK companies, and aims to make the UK a world centre for cyber security insurance.
It highlights the exposure of firms to cyber attacks among their suppliers with a key agreement that participating insurers will include the Government’s Cyber Essentials certification as part of their risk assessment for small and medium businesses.
Cyber threats are estimated to cost the UK economy billions of pounds each year with the cost of cyber attacks nearly doubling between 2013 -2014. The report found that, while larger firms have taken some action to make themselves more cyber-secure, they face an escalating threat as they become more reliant on online distribution channels and as attackers grow more sophisticated. It issues a call to arms for insurers and brokers to simplify and raise awareness of their cyber insurance offerings and ensure firms understand the extent of their coverage against cyber attack.
Companies are recommended to stop viewing cyber largely as an IT issue and focus on it as a key commercial risk affecting all parts of its operations. The report is the product of collaboration between Government and the sector following a Summit held last November. It recommends firms examine the different forms of cyber attacks they face, stress-test themselves against them and put in place business-wide recovery plans.
The report also notes a significant gap in awareness around the use of insurance, with around half of firms interviewed being unaware cyber risk insurance was available. Other surveys suggest that despite the growing concern among UK companies about the threat of cyber attacks, less than ten per cent of UK companies have cyber insurance protection even though 52% of CEOs believe that their companies have some form of coverage in place.
Inga Beale, CEO of Lloyd’s said:
“I am very pleased to have had the opportunity to represent Lloyd’s on the working group which contributed to this excellent report.
“Cyber risk poses the most serious threat to businesses and national economies, and it’s an issue that’s not going to go away. The London market has a long, proud history of finding innovative solutions to insuring large, complex risks that are challenging to underwrite locally.
“Just as the market has responded to new challenges before, so it needs to again. The insurance industry, with the Lloyd’s market leading the way, has a key role to play in cyber risk protection going forward.”
Francis Maude, Minister for the Cabinet Office and Paymaster General said:
“It is part of this Government's long-term economic plan to make the UK one of the safest places in the world to do business online. The UK’s insurance market is world renowned and we want it to be the same in relation to cyber risks. The market has extensive knowledge and experience of more established risks to help businesses manage and mitigate relatively new cyber risks.
“Insurance is not a substitute for good cyber security but is an important addition to a company’s overall risk management. Insurers can help guide and incentivise significant improvements in cyber security practice across industry by asking the right questions of their customers on how they handle cyber threats”.
Mark Weil, CEO of Marsh UK & Ireland, added:
“While critical infrastructure in regulated sectors, such as banks and utility firms, are used to this kind of risk, most firms are not and their risk management practices are geared around lower-level, slower moving risks. Companies will need to upgrade their risk management substantially to cope with the growing threat of cyber attack, including introducing disciplines such as stress-testing, and creating a joined-up recovery plan that brings together financial, operational, and reputational responses.”
Key findings from the report:
- Insurers can help firms better manage their cyber risks. By asking the right questions and educating clients, insurers can help drive the adoption of cyber security best practice, including Cyber Essentials.
- The UK insurance sector is already a world-leader. With initiatives like this the sector is demonstrating that the UK is the natural home for a growing global cyber insurance market.
- Insurers support shows the success of Government’s Cyber Essential Scheme. They recognise having Cyber Essentials certification is a valuable indicator of a mature approach to cyber security in SMEs that contributes to the reduction of risk.
- The contributing insurers will incorporate Cyber Essentials into their risk assessment process for SMEs, making it easier for firms to get coverage.
- Firms place cyber amongst their leading risks in terms of likelihood and severity of impact.
- Banks and national infrastructure organisations are generally better equipped in modelling cyber risks which can be very fast moving and damaging whereas most other businesses are not as well equipped to deal with this type of ‘tail risk’.
- Modelling of cyber risk has been difficult due to a lack of available data. However, there are alternative approaches to valuing the risk of cyber attack including using stress testing.
- There is a lack of awareness of cyber insurance and certainty about coverage – less than 10% of companies have cyber insurance according to recent surveys.
- A lack of data pooling poses a challenge for the insurers in the development of their pricing models and coverage.
- The potential for the aggregation of losses impacting a large number of firms and arising from a is a growing concern for insurers.
- The UK insurance market has a history of underwriting large complex risks and has established itself to be a leading market in the provision of cyber insurance
For insurers and Government
- Participating insurers will include the Cyber Essentials certification as part of their cyber risk assessment for SMEs when backed by a suitable insurance policy in order to improve their supply chain resilience. This will simplify the application process for businesses.
- A new forum will be established by HM Government with the insurance sector, including the ABI and Lloyd's, on data and insight exchange for policy discussions.
- Firms should review their management of cyber risk. Effective risk management needs to include a Board-level owner for cyber risk, a joined up recovery plan and the use of stress testing to confirm financial resilience against cyber threats
For insurance brokers
- Participating insurers will include Cyber Essentials accreditation as part of their risk assessment for SME to encourage greater adoption. Marsh will launch a new cyber insurance product for SMEs which will absorb the cost of Cyber Essentials certification for the majority of firms. HMG encourages other brokers to follow suit.
- Brokers should provide firms with a cyber assurance statement to give the Board confidence of the completeness of their cover.
For the market
- Lloyd's will work with UKTI to market the cyber capabilities of the London Insurance market globally.
- A new multi-disciplinary taskforce set up by CityUK aimed at bringing together different sectors to accelerate discussions on a joint UK cyber offering related to insurance for export.
The Cyber Essentials Scheme was launched on 5 June 2014. This new Government-backed and industry supported scheme guides businesses in protecting themselves against the most common cyber threats. Cyber Essentials documents are free to download and any organisation can use the guidance to implement essential security controls. Organisations successfully independently assessed by a Certification Body can achieve a Cyber Essentials award to demonstrate that they meet the government endorsed set of basic controls on cyber security.
The Ten Steps to Cyber Security guidance and the Cyber Security Guidance for small businesses show companies how they can manage cyber security risk and put best practice in place.