Insurance Industry Says Cyber Threat Database Needed

[Audrey McNeil <audrey () riskbasedsecurity com>]

http://www.insurancejournal.com/news/national/2015/04/06/363334.htm

Cyber insurance is one of the fastest growing property/casualty insurance
markets. But the sector remains the Wild West of risk prevention, a fast
moving target with rapidly-evolving risk portfolios, along with losses and
liabilities that remain hard to quantify.

Last month, cyber experts from different parts of the industry testified
about what is at stake, and what insurers need, before the U.S. Senate
Subcommittee on Consumer Protection, Product Safety, Insurance and Data
Security in Washington, D.C. Among the biggest concerns they raised: the
ever-changing nature of cyber security risk, and the need to find a way for
both government and insurers to share data in an effort to boost their
chances in the fight.

“We believe the industry as a whole would welcome the introduction of
legislation that would reduce barriers and incentivize organizations to
share threat indicators with the government, and each other, while also
protecting individual privacy, Ben Beeson, vice president of cyber security
and privacy for Lockton Companies, told the committee in his written
testimony. “Actuarial data is extremely thin on the ground and is holding
back the growth in market capacity, particularly to address the previously
highlighted risks to critical infrastructure industries.”

Too Big for Private

Catherine Mulligan, senior vice president of Zurich North America’s
management solutions group, told the committee that “scope of the exposures
is too broad to be solved by the private sector alone.”

She said, for example, that a public company that faces a cyber security
breach could face a shareholder derivative suit or many other liabilities,
because “one event can lead to multiple claims for many insureds” within
one company. Making things worse, that event can even physically harm a
manufacturer or utility, Mulligan noted.

Adding to the challenge, Milligan cited statistics from Dowling & Partners
that point out more than 60 carriers wrote cyber security coverage as of
October 2014. But that number is misleading, she said in her written
testimony, because of “a number of excess markets pulled out of the product
line” since then “or limited their appetite.”

Mulligan said there is need for a national database that collects cyber
threat information to help the insurance industry catch up with the
fast-evolving situation.  At the same time, the practical issues of who
would “own” the data, what kind of information goes into the database, and
how to make it anonymous, yet available, have yet to be determined after
some early government/industry committee meetings, she pointed out.

Mulligan, on behalf of Zurich, has participated in public sector dialogue
on cyber insurance through a Department of Homeland Security Working Group
focused on the issue and in other venues.

“Breaches are outpacing the time it would take for insurance
product/pricing to develop,” Mulligan added, noting she supports a national
standard for cyber breach notification requirements.

State Standards

Relying on individual state standards for cyber breach notifications is
more than problematic and inhibits the growth of proper cyber security
coverage, Michael Menapace, counsel at Wiggin and Dana LLP, and adjunct
professor of insurance law at the Quinnipac University School of Law, told
senators on the committee.

Menapace said that 47 states have data breach notification laws, some of
which are inconsistent with each other.

“A consumer in one state may be notified, but a consumer in another state
impacted by the same [cyber breach] may not be notified,” he said. “The
[insurance] market as a whole could benefit from the sharing of information
about data breaches.”

Boost Cyber Insurance

Ola Sage is CEO of e-Management, a small business provider of IT services
and cyber security products for private and public-sector clients. She told
the committee that there are three basic actions that could help boost
cyber insurance coverage and effectiveness.

First, there must be action to increase awareness of cyber security
insurance as a risk transfer option for small businesses, Sage said.

She asserted in her written testimony that most small businesses are not
aware of cyber security insurance, and that a cyber attack could force many
to shut their doors. With that in mind, Sage argued that cyber security
insurance must be made affordable for small businesses, considering that
they may be “the fasted growing segment of cyber attack victims.”

Third, Sage said small businesses should be rewarded in their insurance
purchases for actively managing their cyber security risks and implementing
“reasonable security measures.” She cited the Cyber Security Framework
(CSF) developed by the federal agency known as the National Institute of
Standards and Technology as a possible tool to make this happen.

“We strongly believe that any small business that uses the CSF can
significantly reduce their cyber security risk exposure,” she said.

U.S. Sen. Jerry Moran (R-Kan.), the subcommittee chairman, hinted at an
effort to come up with an insurance industry-friendly solution. At the
start of the hearing he said: “Cyber insurance may be a market-led approach
to help businesses improve their cyber security posture.”

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