Moving from Cyber Risk Insurance to a Cyber Risk Management Strategy


2021 has progressed with even more challenges and promises to deliver even more changes to the pace of a fast technological environment, risk professionals need to look back and consider the lessons learned from 2020.

Have we returned to where we were, or have we moved on to a new norm?

What does the COVID-19 pandemic market data tell us that will help us to prepare for future global crises?

2020 was a rollercoaster for the financial markets. At the beginning of the year, the economy was enjoying the longest continuous growth stretch on record.

The stock market was constantly hitting new highs. The Federal Reserve was starting to bring Treasury yields back up for the first time since the Great Recession. And, then came March.…

Given that framework, the first question we want to answer is: “As risk professionals, how prepared were we for these types of market swings?”

In the insurance industry, companies rely on economic scenario generators (ESGs) to produce a wide range of plausible, cohesive futures for the variables that drive their results — for example, corporate bond and equity returns, as well as Treasury yields.

These models are not predicting specific events, like a pandemic or a war; instead, they simply attempt to estimate the likelihood of a 20% drop in the equity market over the next year.

So, to answer the question posed above, we need to test how well the ESGs that we use we’re able to predict the financial market movements we have seen in 2020.

If our models covered these types of results, then we can take comfort that we were well prepared; if not, then we have to think about how to adjust our framework to be better prepared for the next calamity.

So, where does this leave an Insurance Chief Risk Officer?

First, we should take a critical look at how well our key economic models performed at anticipating these types of extreme market movements. If our models weren’t up to the task, then we need to rethink how those models are calibrated, as this is likely to lead us to either take on too much risk or the wrong types of risks.

We also want to make sure we perform this review on both the good times and the bad times since we are using these models for much more than just risk measurement.

This now brings us to one of the widest subjects in technology today; Cyber Risk insurance, which has become very popular over the last five years with larger corporations as a means to potentially cover the unexpected cost relating to data breaches and ransomware attacks.

This is not surprising taking into consideration that Global ransomware damage costs are predicted to reach $20 Billion (USD) by 2021 according to the latest report by Cyber Security Ventures.

According to the report, this is a 57X increase in the last five years. Ransomware is expected to attack a company every 11 seconds according to the report.

Ransomware poses the biggest threat as a business is adversely impacted to a point where business is shut down. In 2019 alone, the average business downtime was over nine days. According to Bitdefender, downtime costs due to ransomware on average were 50 times more than the ransom requested from Cyber Criminals.

According to the latest IBM Security Ponemon report on the cost of data breaches, the average for data breaches in the US was $3.8 million (USD) for less than 100,000 records. The average time to identify and contain a breach is 280 days. In breaches of 1 million to 10 million data records breached, the average cost was $50 million (USD), more than 25 times the average of the cost of breaches for less than 100,000 data records.

Looking at the following top Cyber threats to companies for 2021, according to Security Boulevard, the cyber attack surface is increasing as companies accelerate digital transformation and remote work, leaving the company at higher risk for Cyberattacks.

• Cloud-based threats. As more companies move to cloud services and adopt more cloud-based tools from 3rd party vendors, this also increases the security footprint the company needs to look at protecting. It is no longer just the internal systems of the company that poses a risk.

• Insider threats. This involves internal actors (employees, contractors, vendors) with valid credentials to key business systems colluding with cybercriminals to provide them access to data that can lead to data breaches and ransom attacks.

• Remote worker end-point security using unsecured network services leading backdoors open for cybercriminals to gain access to company data and infrastructure.

• Phishing attacks employing social engineering to gain access to access credentials.

• Deep Fakes. A growing threat where artificial intelligence is used to manipulate videos that falsely represent a person to commit more advanced phishing attacks. This could generate synthetic identities to gain access to systems.

• IoT devices. Unless properly secured within the overall part of the business, the introduction of IoT devices increases the complexity and attack surface for cybercriminals to exploit. The recent Verkada cyberattack exposing video footage of over 150,000 cameras of various companies such as Amazon, Tesla demonstrated this risk.

• Malvertising where malicious advertisements including technical support scams are used to spread malware.

• Sophisticated and targeted ransomware attacks. This includes a key risk around personal staff safety.

• Social Media attacks where cyber criminals use social media platforms posing as the legitimate company in order to spread malware.

Taking into consideration that the average cost of Cyber Insurance in 2020 in the US, according to AdvisorSmith was $1,485 per year covering the liability of up to $1 million.

There are a number of factors such as company revenues, and the number of sensitive data records, to name a few, that impacts Cyber Insurance premiums.

Looking at the averages for Cyber insurance and the explosive growth in the cost of data breaches, most companies are grossly under-insured to cover the costs of potential data breaches or ransomware attacks.

Cyber-insurance may be a good option for covering some of the liability and cost in the event of a breach, however, it falls way short in minimizing the actual liability in the cost of a data breach or ransom attack to the company.

How should companies and the Board balance the cost to cover the liabilities due to cyber risk in the company?

Spend more money on insurance with higher premiums vs. more investment to implement risk management across the organization and supply chain through policies, incidence response preparedness, cyber training, and Cyber Security systems?

The latter part of the equation can be quite daunting, and the “easy” way out seems to be to rather take out the insurance, and deal with it when a breach happens.

What shall companies look at in order to solve an increasingly complex cyber governance problem when looking at the cost, and where to most effectively spend the money to mitigate the risk?

The typical cost for a cyber attack when that happens can be broken down into the following elements:

• Forensic analysis for identifying the attack source
• Unplanned IT spend to recover data, remove malware, recover from downtime, implementation of new systems to prevent similar attacks, 3rd party vendor or supply chain systems updates, other
• Public relations services
• Notification of clients, shareholders, and regulators
• Credit monitoring services (if financial data was stolen of customers)
• Loss of income
• Regulatory penalties depending on the breach

The best strategy is to as much as possible, avoid the additional cost through better governance and incidence reporting and planning and implementation of automation of security as reasonably possible.

Worldwide spending on information security and risk management technology and services continued to grow through 2020, although at a slower rate than previously forecast, according to Gartner, Inc.

Information security spending grew 2.4% to reach $123.8 billion in 2020. This is down from the 8.7% growth Gartner projected in its December 2019 forecast update. The coronavirus pandemic is driving short-term demand in areas such as cloud adoption, remote worker technologies, and cost-saving measures.

“Like other segments of IT, we expect security will be negatively impacted by the COVID-19 crisis,” said Lawrence Pingree, managing vice president at Gartner. “Overall we expect a pause and a reduction of growth in both security software and services during 2020.”

Gartner’s survey showed the top 10 categories of expenditures as follows:

1. Application Security
2. Cloud Security
3. Data Security
4. Identity Access Management
5. Infrastructure Protection
6. Integrated Risk Management
7. Network Security Equipment
8. Other Information Security Software
9. Security Services
10. Consumer Security Software

How big is your cybersecurity budget? Probably not big enough. Organisations need to invest more in their security.

Over the years, spending on cybersecurity has changed substantially. In 2019, worldwide spending for security products and services is estimated to be more than $124 billion, an increase in growth of 8.7% from last year.

Companies around the world are no longer considering cybersecurity a minor part of their spending budget, but rather a priority. One of the main reasons for this is the large security breaches that have occurred in the past few years, putting business and personal data at a higher risk than ever before.

According to IBM’s report, companies with fully deployed security automation saw a cost-saving of $3.58 million (USD) on the cost of a data breach vs. companies with no security automation.

Companies with incident response preparedness so an impact of $2 million (USD) savings on average on the total cost of a data breach.

Boards and companies should have clear plans and strategies around the following four cost centers. Where cost centers are missing, these need to be taken into consideration. Start with assessments of the status of the activities within these four key pillars for cyber governance and make these a strategic part of all budget spend and activities across the whole company, as well as 3rd party supply chain of the company.

Detection and escalation. Activities that enable a company to reasonably detect the breach.
• Forensic and investigative activities
• Assessment and audit services, including Incident Response
• Crisis management
• Communications to executives and boards

Lost business. Activities that attempt to minimize the loss of customers, business disruption, and revenue losses.
• Business disruption and revenue losses from system downtime
• Cost of lost customers and acquiring new customers
• Reputation losses and diminished goodwill

Notification. Activities that enable the company to notify data subjects, data protection regulators, and other third parties.
• Emails, letters, outbound calls, or general notice to data subjects
• Determination of regulatory requirements
• Communication with regulators
• Engagement of outside experts

Ex-post response. Activities to help victims of a breach communicate with the company and redress activities to victims and regulators.
• Help desk and inbound communications
• Credit monitoring and identity protection services
• Issuing new accounts or credit cards
• Legal expenditures
• Product discounts
• Regulatory fines

(Cost center model per IBM in the Cost of Data Breach Report)

Digital technologies are ushering in a new era and driving transformative changes in every industry, as organizations adopt these technologies to redefine how they create, deliver, and capture value.

Identifying, understanding, and addressing new risks associated with digital transformation will help businesses derive more value from their efforts in the future. What’s more, understanding how digital transformation can be applied to risk management will enable organizations to take a more balanced view of digital technologies as both a source of risk and a way to manage risk.

As your organization embarks on its digital journey, we invite you to learn more about the evolving risk landscape and new opportunities to better manage risk.

Misalignment between an organization’s goals for digital transformation and employee values and behavior creates new culture risks.


The final topic we would like to address is digital ethics, being more in tune with digital ethics and having plans and processes in place will also help organisations respond more effectively when an incident does occur.

Firms not only need processes in place to ensure that they are ready to respond quickly to address problems but also to fulfill their regulatory obligations by promptly disclosing any breach to the regulator as well as any impacted customers.

As part of their digital transformation efforts, organizations need to act responsibly and promote ethical use of technology.

They also need to have pre-established influencer relationships that they can leverage to counter any hysteria or misinformation which might arise that could interfere with their business or impact their brand.

Organisations that have a culture that takes digital ethics seriously, will behave in ways that will minimise the risk of incidents and will act in ways that help build stakeholders’ trust. Those that don’t take digital ethics as seriously will not only be at higher risk of impact but will struggle to establish such trust.

Making data ethics a key corporate value can have a significant potential upside. Implementing data privacy policies and updating crisis management plans to address data breach scenarios will minimise any downside.

At the very least, engaging with Influencers or Cyber professionals/experts early can help you be better prepared to respond to calamities, our definition of influencers is quantified as Cybersecurity specialists who play a key role in securing information systems.

By monitoring, detecting, investigating, analyzing, and responding to security events, cybersecurity specialists protect systems from cybersecurity risks, threats, and vulnerabilities.

While taking their advice or using them to independently assess or benchmark your data privacy policies and crisis management plans can be used to demonstrate best practice in these areas, which in turn can mitigate potential fines or legal exposure in the event of a calamity.

Your customers want you to take a stand on data security and privacy, and be transparent about it – seeing it as more important than either your diversity or sustainability efforts.

Each and every company, regardless of its industry, has weaknesses that hackers exploit for their own gain. Just because a business is small or not in a vertical often associated with valuable data (such as healthcare or financial services) doesn’t mean it won’t make an enticing target for an opportunistic cybercriminal.

In fact, there are a number of reasons why start-ups and small businesses are sometimes more likely than even big businesses to be targeted.

  • Customer Information: Even the smallest start-ups often store or handle customer data such as financial information, Social Security numbers, and transaction history.
  • Proprietary Data: Start-ups often carry innovative and creative ideas for products and services, as well as internal research data that could be valuable to outside parties.
  • Third-Party Vulnerabilities: Hackers also target small businesses and start-ups because they sometimes do business with larger companies as third-party vendors and can provide entry points into those more valuable networks. Target’s infamous 2013 credit card breach, for instance, happened because of vulnerabilities in a third-party vendor’s system.
  • Multiple Interfaces: Another reason for increased attacks is the growing use of Internet of Things (IoT) devices that increase the attack surface of networks. Small businesses are turning to IoT devices more often due to their lower costs and growing capabilities. Unfortunately, hackers often exploit poorly secured devices as a backdoor to access broader, more sensitive networks.
  • Lack of Finances: Since small businesses and start-ups are working on a tight budget, they don’t always place cybersecurity is not at the top of their priorities list and often neglect the latest patches and updates.

The power of digital technologies to enable new sources of revenue can be significant. Due to the proliferation of digital technologies and the particular ethical challenges they present, organizations are increasingly expected to consider ethical obligations, social responsibilities, and organizational values as guides to which digital opportunities to pursue and how to pursue them.

As discussed in the “Managing data risks for value creation” trend, responsible and unbiased collection, handling, use, and privacy are top areas for concern when it comes to data. Also, there are increasing calls for digital services that are fair and equitably accessible, promote physically and mentally healthful uses, encourage inclusion, and are geared toward socially beneficial uses.

Digital adopters want technologies that aren’t harmful or abusive and are safe and error-free. There’s an opportunity to do well by doing good—pursuing digitally responsible growth strategies that build stakeholder trust.

Finally, organizations are conscious that digital transformation involves more than technology adoption. It requires concerted efforts to define how enterprises organize, operate, and behave by aligning strategy, structures, processes, people, and technology to build a unique digital DNA.

Organizations can sidestep unnecessary risks and harness risk to power performance by adopting a risk lens and a holistic approach as part of their efforts. Below are a few guiding principles.

Conclusion; Boards can harness risk to power performance in a digital world, but only with a responsible Digital DNA and hopefully with the Digital Services Act (DSA) that will bring digital reform.

As Tom Golway, Chief Technologist in the Advanced R&D organization of Hewlett Packard Enterprise once said:

“The deeper, philosophical question is does the 1st Amendment apply to AI algorithms. Resolving this is an immediate challenge that needs open dialogue that includes a broad set of disciplines, not just technologists”

This article is the expressed opinions and collaboration between two senior-level industry board professionals on their views and perceptions on the subject matter:

MARIA PIENAAR CTIO, Corporate Innovation, Digital Transformation, Investor Private Company Board Director & Advisor Maria propels growth by speeding up discovery for companies whose leaders are frustrated by the slow pace of innovation.

Being a master networker, she extracts strategic value through tapping latent creativity of teams and customers and catalyzes partnerships with highly innovative organizations. Her diverse leadership roles in global 100 and startup companies enable her to see the end-to-end picture and plot the most effective course for designing, launching and scaling new products and services for companies, driving customer growth. Maria co-founded Blue Label Ventures, a Corporate VC focussing on investments in Digital Health, IOT, Cyber Security, Fintech (incl. InsurTech).

Prior she was CIO at Cell C, a challenger mobile carrier, and prior held various leadership roles in Business Development, Go-to-Market Strategy, Strategic Partner Management and Product Marketing for Lucent, Nokia, Vodafone, Globalstar and various startups. Maria holds a BSC in engineering.

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Geoff Hudson-Searle is an independent non-executive director across regulation, technology and internet security, C-Suite executive on private and listed companies, and serial business advisor for growth-phase tech companies.

With more than 30 years’ experience in international business and management. He is the author of five books and lectures at business forums, conferences and universities. He has been the focus of TEDx and RT Europe’s business documentary across various thought leadership topics and his authorisms.

Geoff is a member and fellow of the Institute of Directors; associate of The International Business Institute of Management; a co-founder and board member of the Neustar International Security Council (NISC); and a distinguished member of the Advisory Council for The Global Cyber Academy.

He holds a master’s degree in business administration. Rated by Agilience as a Top 250 Harvard Business School thought leader authority covering blogs and writing across; ‘Strategic Management’ and ‘Management Consulting’, Geoff has worked on strategic growth, strategy, operations, finance, international development, growth and scale-up advisory programmes for the British Government, Citibank, Kaspersky, BT and Barclays among others.

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