Abstract

The penetration of the technology in our lives is so much that all our essential working is dependent on technology. The same is true with the banking sector. The banking has been made simple with the use of technology in all domain of traditional banking With the rise of digitization, comes the rise in threat of cyber-attacks. In the past few years we have seen numerous cyber-attacks on corporate as well as individuals. So protection of data is the need of the hour. This article touches on the concept of protection of data and introduces Cyber Insurance as a risk transfer measure.

Cyber Insurance- A Risk Transfer Measure

We are all aware of the saying necessity is the mother of all inventions. The saying in today’s context is somewhat changed. Rather putting it in the simpler form we would rephrase it as technology is the genesis of developmental advancement. We are now dependent on technology so much that our major time is invested in the gadgets that are the gift of this technological advancement. Without them our life seems to be dull and void. The penetration of the technology in our lives is so much that all our essential working is dependent on technology. The same is true with the banking sector. The banking has been made simple with the use of technology in all domain of traditional banking. Be it transaction, deposit, transfer of funds etc. all are totally dependent on the effective use of technology. With the advantages of being techno friendly we are also vulnerable to certain data theft and be victim of Cybercrime which can put any organization to reputational risk.

Now a days there are lot of instances of Cyber Extortion, Cyber Stalking, and Hacking due to which many advanced nations and Corporations are facing issues in protecting their data intelligentsia. There have been instances of cyber-attacks on the various banks in the past where cases siphoning off the money were attempted and our bank was also one of the victims.

With the rise of digitization, comes the rise in threat of cyber-attacks. In the past few years we have seen numerous cyber-attacks on corporate as well as individuals. Malwares like WannaCry, Ransomware etc., left the American and European nations perplexed as the most valuable of the lot – DATA, was made vulnerable and the cyber theft has resulted in hackers siphoning off money from the big corporate and left the database accessible to the hackers. This has raised the crime rate and a new type of war began which we can term as Cyber War or Cyber terrorism. Here, the terrorist organizations with the use of high end technology and algorithms attack the confidential government database and extorts a hefty sum from the nations for decrypting the same.

As the custodian of public’s money, Banks needs to build on the CIA Triad (Confidentiality, Integrity, and Availability) .Here most important factor is to protect the customer data. With millions of consumers transacting with banks online every year, it is a bank’s obligation to put mechanisms in place to stop the loss of Personally Identifying Information (PII), transactional data of its customers, and bank’s internal sensitive information. It is also the bank’s responsibility to respond in an efficient and effective manner in case of such losses. Cyber frauds are a fast emerging threat to most of the business entities and more so to financial institutions, including banks. Banks have been building suitable cyber defense systems to detect and prevent cyber-attacks and minimize, if not avoid, financial losses. For the Bank, the most valuable assets are its customer. For a customer it is the trust factor that plays a significant role in building long term relationships with any banking institution. So for the banks it becomes pertinent to identify the risk involved with online cyber frauds and as a matter of saving the institution from Reputational risk loss, adopt risk mitigation measures so that the banker- customer relation remains intact.

Cyber Insurance – a Risk Transfer measure

Business losses can occur by two ways i.e., Naturally occurring losses caused due to natural calamities, like fire , earthquake, floods etc. and the other human induced losses, caused due to malafide intentions or by certain acts of thefts be it physical theft or cyber theft . Though not natural, thefts and robberies are also considered unavoidable. Banks find ways of transferring the risk of loss due to such unavoidable events through insurance. So to mitigate the risk it is necessary to transfer the risk through cyber insurance.

Cyber insurance is a customized insurance offering comprehensive cover for third party liability and first party expenses a bank may incur arising out of unauthorized access or use of its physical and electronic data or software. Cyber insurance policies can also provide coverage for liability, costs and expenses arising from network intrusion, the spreading of a virus or malicious code, computer theft or extortion. Cyber insurance also provides cover for business interruption and the cost of notifying customers and regulatory investigations or actions in case of a breach, without the requirement for physical damage that is a standard trigger under property policies. The Reserve Bank of India highlighted the need for Indian Banks to obtain Cyber Crime Insurance in its Internet Banking Guidelines of June 14, 2001 to ensure that customers are spared from phishing liabilities.

Cyber insurance policies are designed to address many variables within the online realm and can include:

The liability of the bank arising from data protection laws

The management of personal data and the consequences of losing personal identifying information

Repair of banks’ reputation Notification and monitoring costs

Cyber extortion and network interruption.

Cyber Insurance is a comprehensive insurance solution for banks covering first-party costs and third-party liability risks arising from a cyber-event.

First-party Coverage

First-party covers provide protection to the bank in the event of a loss whether caused by itself or someone else. When a bank experiences a cyber-attack or a data breach, the following events/occurrences can be covered under insurance:

Employee Theft Coverage

Premises Coverage

Transit Coverage

Computer Fraud Coverage

Depositors’ Forgery Coverage

Forensic Investigation

Business Interruption

Computer Data Loss and restoration

Extortion

Third-party Coverage

Third-party coverage provide protection to the bank against the claims of third party. When a bank experiences a cyber -attack or a data breach, the following events/occurrences can be covered under insurance:

Litigation and Regulatory

Regulatory Response

Notification Costs

Crisis management

Credit Monitoring

Media Liability

Privacy Liability

In India, the concept is still at a very nascent stage. As per industry reports, there has been a 40 % rise in cyber insurance policies in 2018 as compared to 2017 which is indicating that customers are becoming more aware of the threats being faced by them in the cyber space and that the major threats that the corporations are facing is coming from cyber criminals and the integrity of the valuable data of their clients is being put on stake and risk. The major areas covered by the policy issued in India include:

IstParty Expenses

Privacy and Data Liability

Business Interruption

Cyber Theft

Some of the insurance companies providing cyber insurance services in India are Tata AIG, ICICI Lombard, Bajaj Allianz, HDFC ERGO and New India Assurance.

Barriers to Growth

Although the concept of cyber insurance looks appealing yet there are certain roadblocks to its full implementations for both insurer and the insured. The major problems are:

Lack of a Privacy Law in India

Industry specific Risk

 Lack of historical data

Cost burden in adopting a cyber-insurance cover

Underlying complexity of calculating premium, assessment of third Party loses, detecting fraudulent claims

Difficulty to predict probability of occurrence and impact of the risk

Having to customize policy covers and premiums for each industry

Lack of predefined standards, metrics of cyber risk insurance

Ambiguity over the scope and coverage of policies

Absence of a single comprehensive insurance cover (presence of multiple covers and policies by different insurers)

The Future Course of Action

Looking at the barriers of growth of demand in the cyber insurance and understanding the gravity it is important that the onus of creating space for the cyber insurance in market lies with the stakeholders who are getting affected directly or indirectly. So stakeholder wise action points are as follows:

Regulators / Govt. Bodies

Creating awareness and ecosystem skills in cyber insurance policies by running awareness programs. Incentivizing various organizations  through direct intervention or providing  procurement benefits  Providing Toolkits and  Checklists

Introducing cyber insurance as a measure to mitigate risks through National IT and Security Policy.

Creation of Cyber Incident Data Register for referral purpose assessable to cyber cell and networking experts.

Promoting actuarial science for better modeling of cyber risks

Creating Crisis Response Team at national and State level by government and at corporate level by Private entities to meet any future cyber threats and instances.

Tech Firms

Setting up of sector-specific cyber risk assessment framework

Offer Industry specific customized products and services.

Brokers

Increase awareness about the product amongst consumers and user of IT products.

Clearly define the provisions of the cyber insurance policies to the customer so that they can have a clear understanding of the policy

Buyers

Regularly undergo cyber risk evaluation to understand system vulnerability

Creation of Cyber Risk Committee to have a better understanding of cyber risk

Conclusion

Though Cyber Risk Insurance is at a nascent stage in India, but looking at the instances of cyber frauds across the globe it is soon going to occupy a prominent place in the insurance market and will soon be most seek after insurance product. Many organizations at present are not adopting it as they find it inapplicable for their organization but it may soon become unavoidable. The need of the hour is to have a proper risk assessment of the threat and mitigate the same by adopting a comprehensive cyber insurance policy so that the CIA triad can be well established and the customer DATA can be well protected.

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This entry is part 2 of 16 in the series February 2021 - Insurance Times

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