Cyber insurance industry could face turf war, report warns

Tech companies could corner market if traditional underwriters don’t step up

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Since the dawn of the Inter­net Age, tech­nol­o­gy giants have stormed into old indus­tries. They’ve rev­o­lu­tion­ized busi­ness mod­els. They’ve even crushed some tra­di­tion­al com­pa­nies. Could the same sce­nario unfold in the insur­ance field?


A recent Price­wa­ter­house­C­oop­ers report warns that if tra­di­tion­al insur­ers don’t move quick­ly to cap­ture the cyber insur­ance mar­ket, tech­nol­o­gy giants such as Apple, Google and Microsoft could invade their turf and rock the multi­bil­lion-dol­lar industry.

The report finds that the cyber insur­ance mar­ket is “still large­ly untapped,” as many insur­ers and re-insur­ers remain wary of offer­ing cyber poli­cies to clients because of the risk of high-loss expo­sure to cyber attacks.

But PwC cau­tions that insur­ers face anoth­er big risk: los­ing oppor­tu­ni­ties with younger con­sumers in the “poten­tial­ly huge” cyber-insur­ance field, which is pro­ject­ed to grow to $7.5 bil­lion in gross writ­ten pre­mi­ums by 2020. Cyber insur­ance pre­mi­ums world­wide could grow 20 per­cent a year to $20 bil­lion by 2025, accord­ing to a recent report by glob­al insur­er Allianz.

Secu­ri­ty & Pri­va­cy News Roundup: Stay informed of key pat­terns and trends

If the indus­try takes too long,” PwC ana­lysts write in their report, “there is a risk that a dis­rup­tor could move in and cor­ner the mar­ket by aggres­sive­ly cut­ting prices or offer­ing much more (favor­able) terms.”

Exploit­ing a niche

Mil­len­ni­al con­sumers in their 20s and 30s are more like­ly to trust Google and Apple than tra­di­tion­al insur­ance com­pa­nies, PwC Insur­ance Part­ner Paul Del­bridge told Reuters. “I can see Google being very cre­ative,” Del­bridge says.

Derek Gabbard, FourV Systems president
Derek Gab­bard, FourV Sys­tems president

Tech­nol­o­gy and tele­com firms—Apple, Google, Microsoft, Ver­i­zon and others—could lim­it risk in cyber insur­ance and oth­er busi­ness cov­er­age in a vari­ety of ways. With their raw data on com­pa­nies and con­sumers, they could crunch sta­tis­tics, build actu­ar­i­al tables, and ana­lyze risk bet­ter than tra­di­tion­al under­writ­ers, say Derek Gab­bard, pres­i­dent of FourV Sys­tems, and Casey Cor­co­ran, a part­ner at FourV.

With more exper­tise in cyber­se­cu­ri­ty than insur­ance firms, the tech com­pa­nies could set up fire­walls, encryp­tion and oth­er state-of-the-art secu­ri­ty mea­sures for cor­po­rate clients. Their vast data on sus­pi­cious users’ activ­i­ty and unusu­al net­work traf­fic would detect pos­si­ble cyber threats to busi­ness­es much ear­li­er than insur­ers could track it.

Poised to make inroads

The tech com­pa­nies could send real-time weath­er and traf­fic alerts via mobile devices and GPS to steer dri­vers away from storms, flood­ing and oth­er nat­ur­al dis­as­ters. They also could ana­lyze con­sumers’ lifestyles and health habits using the data from “wear­able” tech prod­ucts such as the Fit­bit activ­i­ty wristband.

Apple and Google have huge steps over tra­di­tion­al under­writ­ers who are try­ing to piece togeth­er and under­stand this data,” Gab­bard says. “Once they’re estab­lished in cyber insur­ance, it would not be a big leap to life, auto and health insurance.”

But skep­tics say that even the rich­est tech­nol­o­gy com­pa­nies face huge obsta­cles in enter­ing the insur­ance and cyber insur­ance realm.

Insur­ers stand ground

They’ll face strong com­pe­ti­tion from the insur­ance and bank­ing indus­tries, which boast glob­al brands, large busi­ness infra­struc­tures, and hun­dreds of mil­lions of loy­al cus­tomers. Finan­cial ser­vice firms also have offered online prod­ucts for years, and they’re unlike­ly to wel­come tech giants onto their turf.

Writ­ing and sell­ing insur­ance is a big under­tak­ing,” says Joseph Salpi­etro, head of IDT911’s cyber claims depart­ment. “Can they find a niche in the indus­try? Absolute­ly. But can they rival AIG and Marsh and Lloyd’s of Lon­don? I don’t believe that will become a reality.”

Tech­nol­o­gy com­pa­nies have flirt­ed with finan­cial ser­vices through the years, and  even­tu­al­ly might drift into the insur­ance world to offer cyber, life and gen­er­al-lia­bil­i­ty cov­er­age, but that won’t be for a long time, says ana­lyst Rob Ender­le of the Ender­le Group.

Insur­ance requires a great deal of exper­tise in terms of under­stand­ing risk,” Ender­le says. “While tech firms should be real­ly good at esti­mat­ing that risk, the oth­er aspects of the busi­ness will like­ly be for­eign to them.”

Three-part series on cyber insurance:
Not all cyber insur­ance is cre­at­ed equal: Tips for busi­ness­es shop­ping for coverage
Despite bar­ri­ers, cyber insur­ance catch­es on in key sectors
Cyber insur­ance ris­es to meet increas­ing secu­ri­ty challenges


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