The current model of cyber insurance faces significant challenges with the growing complexity of the digital landscape and the rapid increase in cyber threats. The existing cyber insurance value chain is being pushed to its limits.
A Fragmented Landscape
Today’s cyber insurance landscape, as highlighted by a 2022 report from Marsh & McLennan Companies, is chaotic and fragmented. The lack of transparency makes it difficult for businesses to find the right coverage at the right price. Despite a 40% increase in cyber insurance policies in the United States, as reported by the Insurance Information Institute, the average coverage of $1 million is well below the average cost of a data breach.
The Missing Piece: Severity Modeling
The current approach to cyber insurance overlooks the critical importance of severity modeling. According to a study by the Ponemon Institute, the average cost of a data breach now stands at $4.24 million, yet only 37% of organizations have cyber insurance that covers the full cost. Recognizing this gap, the National Institute of Standards and Technology (NIST) released a new framework for cyber risk management, emphasizing the need for severity modeling.
Case Study: The High Cost of Underinsurance
Consider the example of a mid-sized tech company that experienced a data breach. Despite having cyber insurance, they found that their coverage was insufficient to cover the full cost of the breach. The company faced significant financial losses, leading to the downsizing of their operations. This real-life example underscores the need for accurate severity modeling in cyber insurance.
The Need for a New Approach
Peter Gutmann, Chief Information Security Officer at the World Economic Forum, has said, “The cyber insurance market is not meeting the needs of businesses. We need a new approach that is more comprehensive and integrated.” This sentiment resonates with a majority of organizations. According to a report from the CyberEdge Group, 71% of organizations believe that the cyber insurance market is not meeting their needs. Furthermore, 62% of these organizations are considering leaving their current cyber insurance provider.
The Future: Vertical Integration and AI
The future of cyber insurance lies in vertical integration and the use of advanced technologies like Artificial Intelligence (AI). A report from Willis Towers Watson found that the use of AI in cyber insurance is growing rapidly, with 60% of insurers now using AI in some capacity. This figure is expected to rise to 80% by 2025.
Our Solution at SecondSight
At SecondSight, we are at the forefront of this transformation. Our mission is to revolutionize the cyber insurance industry using AI. Our platform provides a more comprehensive and integrated view of cyber risk, enabling insurers to better price and underwrite policies.
As we move into an increasingly digital future, the need for a robust and responsive cyber insurance industry is more critical than ever. If the industry fails to adapt, organizations could face increasing risk exposure, resulting in potentially devastating losses. With the right approach – one that includes vertical integration, AI, and a focus on severity modeling – we can build a cyber insurance industry that is fit for the future. Stay tuned for more on this topic as we delve deeper into how we at SecondSight are reshaping the cyber insurance landscape.