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Cyber-insurance is a specialist insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities. Risks of this nature are typically excluded from traditional commercial general liability policies or at least are not specifically defined in traditional insurance products. Coverage provided by cyber-insurance policies may include first-party coverage against losses such as data destruction, extortion, theft, hacking, and denial of service attacks; liability coverage indemnifying companies for losses to others caused, for example, by errors and omissions, failure to safeguard data, or defamation; and other benefits including regular security-audit, post-incident public relations and investigative expenses, and criminal reward funds.
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Because the cyber-insurance market in many countries is relatively small compared to other insurance products, its overall impact on emerging threats is difficult to quantify. As the impact to people and businesses from threats is also relatively broad when compared to the scope of protection provided by insurance products, insurance companies continue to develop their services.
As insurers pay out on cyber-losses, and as cyber threats develop and change, insurance products are increasingly being purchased alongside existing IT security services. Indeed, the underwriting criteria for insurers to offer cyber-insurance products are also early in development, and underwriters are actively partnering with IT security companies to develop their products.
As well as directly improving security, cyber-insurance is enormously beneficial in the event of a large-scale security breach. Insurance provides a smooth funding mechanism for recovery from major losses, helping businesses to return to normal and reducing the need for government assistance.
Finally, insurance allows cyber-security risks to be distributed fairly, with cost of premiums commensurate with the size of expected loss from such risks. This avoids potentially dangerous concentrations of risk while also preventing free-riding.
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