The cyber insurance market was estimated to be worth US$6.848 billion in the year 2019. Rising cybercrime is the prime reason behind the surge of this in this market. Further, the adoption of cloud-based computing along with growing data centers has increased concerns regarding the safety and security of crucial data. While physical components at data centers can be protected against theft or robbery using the employment of data center physical security, such as video surveillance camera, fingerprint or face recognition devices, logging devices, mobile-based access control, and others, network-based data bleaching is still possible and require specialized cybersecurity software and cyber insurance.
Surging Cybercrime Leads to Growth in the Market
Rising cybercrime is the prime concern dealt with by cyber insurance. Cybercrime includes computer-based crime involving computers and networks. Cybercrime can be classified into 5 activities causing disturbance due to ill-intentions. The top one is Phishing scams. Hackers and criminals intend to extract sensitive or personal information through the development of phishing websites, that replicates the original one. The sensitive information involves bank passwords, home addresses, social security numbers, and other crucial data. They then can use such information to purchase goods in the name of the person, without them knowing it. Cyberstalking is another cybercrime where cyberstalks monitor a person’s activities on the computer by infecting the victim’s computer using malware. They may then harass the victim using the information collected. Invasion of privacy is another heinous cybercrime, that should be urgently reported to the authorities. Theft scams and online harassment are other cybercrime which disturbs a human life.
Cybercrime causes significant economic loss. A 2014 report by McAfee Corp. states that global economic loss due to cybercrime was worth US$445 billion. This includes a US$1,5 billion loss to online debit and credit card fraud, in the US alone. Another study by the Center for Strategic and International Studies (CSIS) states that around 1 percent of global GDP, accounting for US$600 billion, was lost due to cybercrime in the year 2018. Cybercrime also severely affects the companies, resulting in loss of brand name, reduction in customer base, penalties, and other legal fees. Hence it becomes crucial to reduce the crime and to provide coverage against it.
Cyber Insurance to Rescue
Cyber insurance is a type of insurance that protects the business and individuals against network-based risk and theft, including risk accompanied by IT infrastructure, privacy, governance liability, and others. Cyber insurance covers third-party claims as well as first-party, reducing the risk thereof. Moreover, insurance facilitates the fair and widespread distribution of risk over a large number of customers, hence reducing the cost on individuals. Cyber Insurance also helps in dealing with penalties and other legal fees, reducing financial stress on individuals or firms. Further, underwriters are partnering with IT security firms to develop high protection software, reducing the risk further. However, critics believe cyber insurance is an external expenditure incurred due to criminal activities, that should be controlled by the legislations.
The Banking, Financial Service, and Insurance (BFSI) Sector Is Most Prone to Cybercrime
The BFSI sector faces the highest threat of cybercrime. Especially, with sensitive data such as bank account number and password, social security details, personal information, and other crucial information. Cybercrime in this sector is on the rise, on both, large and small-scale. In February 2018, a group of unidentified hackers pilfered into the accounts of the Russian Central bank and stole the US $6 million using the SWIFT international payment messaging system. Marriot-owned Starwood hotels were attacked by hackers in September 2018, stealing information about 500 million people. 327 million people financially suffered due to this robbery. Healthcare and telecommunication sectors are also on the radar of cybercriminals for sensitive data and information.
The Small and Medium Level Enterprises (SMEs) Are Expected To Show Robust Growth in the Forecasted Period
The SME component of the market is anticipated to show exponential growth owing to the surging implementation of cloud computing and growing SME business. According to a World Bank report, SMEs are increasing usage of cloud computing, with 11% using private cloud services while 17% of them use public cloud services. Further, SMEs’ contribution to the global economy is growing with the business growth. The report extends that 60% of global employment and 40% of global GDP are generated by the SME sector. Moreover, governments around the world are supporting the growth of SMEs with the implementation of supportive rules and regulations. The government of India, for instance, implemented schemes such as the Credit Guarantee fund scheme, credit link capital subsidy fund scheme, national award scheme, mini tool rooms and training centers, and of all, Market development assistance scheme for SMEs in order to encourage them. There are around 42.50 million SMEs in India and 72% of these SMEs use or are planning to use cloud computing. Hence the cyber insurance market has a huge potential in the country.
India, China, and the Us Are the Top Cybercrime-Prone Countries In the World
As per 2016 statistics, India was ranked as the third most cyber malicious activity country, while China and the US book first and second positions, respectively. With rising internet penetration in the countries, particularly in India and China, cybercrime has surged to an insignificant level, especially in the categories of phishing, bank fraud, cyberstalking and bullying, cyber harassment, and the introduction of malicious codes. The US is no different with around 1.5 billion people annually suffering huge financial losses owing to bank frauds.
Geographically, the market has been segmented into North America, Europe, the Middle East and Africa, and the Asia Pacific region. Of these, North America and Asia Pacific countries are most prone to cyber threats, and hence providing huge potential for the cyber insurance market. the market growth in this segment is anticipated to grow at an exponential rate with Asia Pacific region dominating the market.
The coronavirus pandemic has severely affected also segments of the economy. However, this pandemic may increase the market size for cyber insurance. Due to the pandemic, economies were rattled and a halt in trade led to increased unemployment. An unemployed population often takes up malicious activities in order to substitute for the income loss. This has led to a rise in cybercrime, especially bank frauds. Hence, businesses and individuals are turning towards cyber insurance to protect themselves from cyber risks.