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January 22, 2019

Cyber insurance is an emerging product that is quickly evolving in terms of coverage and services offered. Typically, cyber insurance compensates the losses due to cyber-attacks, by providing first-party coverage against losses incurred through data destruction, denial of service attacks, data theft and hacking, and a liability coverage settles losses caused by failure to safeguard data. Given the spate in cyber-attacks, and considering the immense financial and reputational losses they cause, there has been a steady increase in the number of corporates opting for cyber insurance.

Although the cyber insurance market today is quite competitive, it remains a complex product. Despite its popularity and necessity, cyber insurance lacks in many aspects, such as:

-Non-availability of historic data for underwriting and pricing of risks, even though these are highly data-driven processes

-The variation and diversity in exposure for individuals and corporates, which drives the need for customization. Corporates that are dealing with highly confidential customer data – financial and personal, digital technology adopted by marine and cargo players, online retail units, manufacturing companies, events like business summits, the Olympics, the FIFA World Cup, and so on, are exposed to varying natures of cyber risks.

-Inability to anticipate the magnitude of  claims occurrence and severity of existing portfolio, and preparing for future capacity

-Identifying loss prevention and prediction controls in advance, and coaching customers about them

-Evolving regulatory standards in data protection across the globe that continue to become stringent by the minute

To succeed in the emerging Business 4.0TM era, cyber insurance providers must focus on the following areas:

Mass customize: Break the customer segments into smaller groups – the ‘segment of one’ – and focus precisely on the products and services that address the exact needs of the customer. Personalizing cyber insurance products and services for individuals, corporates, financial institutions, manufacturers, event firms, logistics service providers, and so on, is the foremost requirement given the varying nature of exposure these entities are at the risk of in the event of a cyber-attack. For instance, the financial loss incurred as a result of theft of customer data at a bank is different from an automobile manufacturer losing the IP of its engineering design. What cyber insurance providers must do is to develop unique underwriting and rating standards for each product, and customize policy definition, coverage limits, and limitations or exclusions to address the diverse needs of the potential market.

Create exponential value: Offering quality products and services at competitive prices, and within short timeframes, is vital to the cyber insurance business. Most importantly, ensuring a personalized customer engagement will improve the outcome for both customers and providers. In delivering cyber insurance products, predictive analytics will play a chief role in finding and reporting vulnerabilities. In addition, providers must assess security standards on a continuous basis in order to mitigate losses. To acquire customers, and to retain them, insurers must introduce premium incentives rewards for customers who have adopted cyber security mechanisms. Educating customers about cyber risks pertaining to their businesses, and sharing insights and expertise gained from other similar types of customers and/or exposures, will expand the customer touchpoint boundaries across the insurance value chain.

Leverage the ecosystem: The growing adoption of digital technologies by enterprises and individuals has substantially increased the possibility of cyber risks. This drives the need for insurance providers to respond quickly to cyber losses and recover the insured in time. To deliver effectively on this requirement, insurers must develop and nurture an ecosystem that includes cyber security solution vendors so they can offer an array of cyber risk products, at competitive prices, as well as be able to bundle insurance products and services to suit customer requirements. This will allow providers to access critical information, such as understanding cyber resilience, i.e., the ability of an organization to operate during, and to adapt and recover from a cyber-attack, which can help providers better understand the risk profile of their customers.

Transforming from a traditional insurer to a full-services cyber insurer is the need of the hour. As a full-services provider powered by a strong cyber security ecosystem, an insurance carrier can prevent incidents well in time. This will require them to conduct thorough initial risk assessment, monitor risks on a continual basis to lower the loss frequency and severity, deploy risk management measures ahead of their occurrence, and finally, help rebuild the customer’s reputation in the event of a successful cyber-attack. As the cyber insurance landscape evolves and policies get concretized, insurers will continue to modernize their processes and offerings, and build ecosystems, to drive superior business outcomes and create true value of the end customer.

Gayathri Devi is a business consultant with the Insurance industry advisory group of TCS’ Banking, Financial Services, and Insurance (BFSI) business unit. With over 13 years of experience in the property and casualty insurance domain, she has worked with TCS’ insurance clients the world over. Gayathri has led business analysis of several key engagements across the insurance value chain and has developed innovative auto insurance solutions such as connected auto platform, telematics-based underwriting, and so on. Gayathri has a Bachelor's degree in Information Technology from Avinashilingam University, Tamil Nadu, India, and a Master’s degree in Business Administration (Finance and Systems) from the PSG Institute of Management, Tamil Nadu, India.



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