By FintechOS · July 26, 2022
5 minute read

Cybersecurity: an opportunity area within SME insurance

Cybersecurity as an opportunity area within SME insurance

SMEs, while the backbone of most economies, can be overlooked and underserved by SME insurance in many ways. Cybersecurity is one such area, and it could have significant consequences. 

The tech industry has made huge leaps in the effectiveness and variety of cybersecurity options available, but small- and medium-sized enterprises (SMEs) still find themselves more at risk than other organizations. In recent years, there has been a flurry of ransomware attacks, and most businesses, regardless of size, have grown only more concerned and diligent when it comes to the risk of cyberattacks. However, the majority of SME business owners are under the impression that they are at less risk than larger companies.

Research by Embroker, an SME insurance firm, found that 63% of small business owners felt they were unlikely to fall victim to a ransomware attack. These statistics also showed that of the small business owners surveyed, a mere 28% of them have insurance coverage for cyber-related crimes. This attitude is startling, considering that additional statistics show us that 43% of cyber attacks are aimed at SMEs, only 14% of which are ready to protect themselves.

Other data supports this harsh reality. According to the US Department of Homeland Security, anywhere between 50% and 70% of ransomware attacks are aimed at SMEs. In all likelihood, this is because those behind the attacks know that these types of business make for easy targets. If SMEs aren’t going to ensure that their cybersecurity precautions are up to scratch, they’ll need cybersecurity coverage even more.

While there are a handful of insurance firms offering cybersecurity coverage, the market is by no means saturated with offerings. This means that there is a unique opportunity within the market for insurers seeking to offer cybersecurity coverage.

What is cybersecurity?

Known by a variety of terms, like computer information technology security, it’s simply how businesses (or individuals) protect networks, computer systems, and data from being stolen, inappropriately used, vulnerable, or scammed. Cybersecurity policies for businesses are often a combination of procedures and safeguarding attempts, such as anti-malware and spyware software.

What is cyber insurance?

Cybersecurity SME insurance is a policy that businesses can arrange. The coverage’s aim is to help reduce the risk of conducting business online. These risks include (but are not limited to) data breaches and cyber-attacks, but how does this type of insurance policy work?

If a business falls victim to a cyber attack, most policies will cover first- and third-party financial and reputational costs in an event where systems have either been compromised, stolen, or damaged. The first-party protection typically covers costs for the investigation of the cyber attack that took place, as well as working to recover any data lost in a breach, repair, or restoration of any compromised systems, and reimbursement for lost income. Many policies will also include the restoration of a business’ reputation that has been damaged as a result of an attack. Third-party cover focuses on claims brought to the business, like damages, settlements, as well as legal fees for defending the company against claims that may arise, like GDPR breaches.

Offering cybersecurity insurance

The current landscape offers SME insurance providers a unique opportunity and the ideal time to add cybersecurity policies to their services. As a result of the coronavirus pandemic, more businesses have had to move online, ecommerce has exploded, and more people than ever are working from home. This remote working era has taken many business networks online in a way they never have been before. Additionally, many businesses have had to begin working differently to ensure that employees can access critical information, including secure and potentially confidential data.

This model puts businesses at risk if they aren’t careful. To change the very workings of a business, and yet not update the procedures, policies, and protection around these changes could lead a business to a great deal of trouble, if not complete cyber-ruin. The sad truth of the matter is that most small businesses close their doors in the months following a cyber attack, finding themselves unable to repair the damage, recover and move on.

Perhaps most importantly, insurance firms should be aware of the expected growth in demand for cybersecurity coverage. As a result of a spike in mandatory cybersecurity regulations and legislation, there is a growing and rather urgent demand for protection. According to a recent report, the post-COVID global cybersecurity insurance market is projected to grow from USD 11.9 billion to nearly USD 30 billion before the end of the decade.

As a result of continually complex, sinister, and aggressive cyber-attacks, new laws are coming into place across the globe to ensure that companies are taking their responsibility to protect themselves and their customers seriously. In fact, in early 2022, the British government began the process of proposing new laws to strengthen the country’s resilience to such attacks.

As other countries inevitably follow suit, businesses of all shapes and sizes will need to update and strengthen their cybersecurity policies not only as part of good business sense and being pro-active but in order to remain compliant with legislation. The opportunities for insurance firms looking to offer cybersecurity policies are indeed there, and are likely to be very fruitful.

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