Companies face soaring prices for cyber insurance

Companies across the world are likely to face further increases in the cost of insurance against cyber attacks according to one of the market’s leading insurers, as criminal ransom demands grow.

The cost of cyber insurance has risen steeply over the past year. According to Marsh, the price of cover in the US grew by 130 per cent in the fourth quarter of 2021 alone, while in the UK it grew by 92 per cent. That has increased pressure on companies who are facing cost inflation in other parts of their business.

Adrian Cox, chief executive of London-listed Beazley, said that prices will continue to increase as insurers react to rising claims: “In the last two years cyber criminality has become a real problem in the corporate world through ransomware . . . insurers are reacting to that and working out how to underwrite it,” he told the Financial Times.

Ransomware attackers encrypt data on the target’s computers, and then demand a ransom for releasing it. Companies who becomes victims often turn to their insurers for help, increasing the level of cyber insurance payouts.

“The dollar impact [on insurance companies] has been severe,” said Cox, adding that some insurance companies have decided to stop writing cyber insurance altogether. That falling capacity, combined with the rising cost of claims, has pushed prices up. “We expect rates . . . to increase for a little while.”

The affordability of cyber insurance was flagged as a concern by US-based News Corp when it reported a cyber attack earlier this month. The group said: “The company cannot be certain that its current level of insurance or the breadth of its terms and conditions will continue to be available on economically reasonable terms”.

Cox argued that the answer is for companies to manage cyber risk better, and for governments to do more to tackle criminals.

“If cyber criminality continues unchecked, [insurance] will become unaffordable,” he warned. “Governments are taking the risk more seriously — it is a public-private partnership. Governments have tools to deploy against these gangs and they are starting to deploy them.”

The turning point for governments, he said, came last year when the Colonial Pipeline, which supplies almost half of the motor fuel consumed on the US east coast, was closed for five days by a ransom attack, leading to a run on fuel supplies as people filled up their vehicles.

Nevertheless, there may be limits to what insurers can cover. Speaking to the Financial Times last week Mario Greco, the chief executive of Zurich, said: “A connected economy offers lots of opportunities for cyber attacks.” A major cyber risk, he added, “is something only governments can manage”.

The steep hikes in the cost of cyber insurance come against a backdrop of rising prices more broadly. According to Marsh, commercial insurance prices rose 13 per cent in the final quarter of 2021.

Greco said that a combination of natural catastrophes and the cost of the Covid pandemic had “created a gap of many billions [of dollars] in capital in the industry, and the industry is trying to rebuild.”

He also pointed out that the cost of reinsurance — the cover that insurers buy to protect themselves — had increased, and that some insurers had withdrawn from commercial insurance, leading to less capacity in the market.