Cybersecurity revenues in the insurance sector are set to grow at a compound annual growth rate of more than 10 percent from $6.4 billion in 2020 to $10.6 billion in 2025, according to industry reports.
The figures are driven by increasing cyber risks as insurance giants such as AXA, CNA Financial, Tokio Marine and Marsh & McLennan suffered cyber-attacks in 2021.
The recent GlobalData report, ‘Cybersecurity in Insurance’, revealed that insurers must navigate the theme cautiously or risk suffering reputational damage from either a data breach or refusing to make a cyber insurance payout.
“Inevitably, the swift digital transformation of the insurance sector is driving the rise in cyber risk,” said Amrit Dhami, Thematic Research Associate Analyst, GlobalData. “The sector is rapidly adopting digital technologies including cloud, the internet of things, artificial intelligence, and data analytics to compete with insurtechs, meet consumer demands for personalisation and convenient digital interfaces, and in response to the COVID-19 pandemic.”
Accroding to Dhami, recent political turmoil have also increased the likelihood of state-sponsored cyber-attacks that target critical infrastructure, military operations, and businesses.
“Such attacks not only target insurers but lead to expensive payouts and damage the reputations of those reluctant to pay. This was the case for Ace American, which was sued by its client Merck in 2022 for failing to cover its losses during the 2017 NotPetya ransomware attack,” he added.
However, insurers are not the only ones facing a higher cyber risk. The current market scenario all feeds back into the insurance sector through the cyber insurance product, the report noted.
Insurtech cooperates and competes with traditional insurance
“Cyber insurance is now far riskier for insurers to provide, with some ransomware gangs reportedly targeting businesses with cyber insurance policies as they are more likely to pay a ransom. It is thus no surprise that the likes of AXA and AIG are rethinking their cyber policies to mitigate the higher risk of a payout through higher premiums and/or reduced customer coverage,” explained Dhami.
He added, “Simultaneously, fewer SMEs are looking to purchase cyber insurance due to the cost-of-living crisis and rising overheads, making it harder for them to afford the coverage. This issue is only being exacerbated by insurers putting up their cyber insurance prices.”
