Cyber Insurance: Does Your Company Need One?

by Carol Ko and Sheila Lam, 12 June 2012

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Risk Management

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cyber insurance policy insurance

On 10 August last year, HKEX, operator of the Hong Kong stock exchange, halted trading in the equity securities and related structured products of seven listed companies. This was after access to the HKEXnews website, which publishes corporate regulatory disclosures, became unstable – it was apparently the target of malicious hacking attacks.

HKEX shares ended the trading day at HK$141.20, then fell 3.3% to HK$136.50 on 11 August. The company clawed back its losses only on 15 August, when the share price closed at HK$140.30.

The stock exchange operator was relatively lucky. “We know from our research that cyber attacks can cause serious reputational damage,” says Marc Breuil, President and CEO of Chartis Insurance Hong Kong. “A recent report suggested that more than three-quarters of people would cease working with an organization in the event of a security breach, and the average share price drop in response to notifying the market of a network security breach is 5%.”

“Cyber attacks, often in the form of data breaches and network intrusions, can also impact operations, frequently result in lost productivity, legal expenses, third party liabilities, exposed intellectual property, and damage to a firm's reputation,” Breuil adds.

Cyber insurance, anyone?

If Breuil has his way, they would also take out a cyber insurance policy, a product Chartis recently launched in Asia Pacific to cover liabilities arising from cyber attacks. Called CyberEdge, the policy is initially targeted at enterprises in Australia, New Zealand, Singapore and Hong Kong that have a minimum annual turnover of US$100,000.

The maximum coverage is currently capped at US$10 million, subject to individual risk assessment. That ceiling should be ample since “the average cost of data security breaches is US$7 million,” reports Ian Pollard, Chartis Vice President, Asia Pacific.

In the US, the average claim over the last four years comes to US$5.2 million. “We paid whether it's the defense costs [in relation to lawsuits], claims for third-party liabilities, a fine as penalty, notification costs or forensic expenses,” he adds.

The cyber-insurance products of other insurers, including Chubb and Zurich, are roughly similar.

Does it make sense?

The question, though, is whether cyber insurance makes sense. If a company already has professional liability coverage, for example, isn’t this new product redundant and therefore a waste of money?

Stella Tse, Asia leader for the financial and professional risks practice at insurance broking firm Marsh, argues otherwise. “Many banks and financial institutions are protected from data loss due to computer failure through professional liability and computer crime coverage,” she says. “There could be overlaps with such existing insurance coverage, but cyber insurance would bring additional coverage to existing policies."

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