Cybersecurity insurance is a must-have for businesses that operate in the digital economy. Why? Because cyberthreats are at an all-time high, and so are the damages they can cause. According to Forbes, 76% of organizations were targeted by a ransom attack in 2022, and the cost of cybercrime is expected to grow from $8 trillion in 2023 to $10.5 trillion by 2025. Yet, costly cyber insurance premiums and high risks can keep both buyers and providers from truly benefitting from coverage.
What’s the solution? Accurate, real-time data that allows providers to confidently assess buyers. As a provider, useful data enables you to lower your own risk while still providing businesses with necessary coverage. You’ll also be able to guide your clients through steps they can take to improve their cybersecurity, which can lower their premiums and decrease the likelihood of needing to file a claim.
In this blog, we cover the costs and risks associated with providing and buying cyber insurance, as well as a solution for improving the risk assessment process.
How Is Cyber Insurance Calculated?
Cyber insurance costs are calculated based on a business’s risk of a breach. The higher the likelihood that an organization will be targeted and affected by a cyberattack, the higher the premiums will be on that organization’s cyber insurance policy. There isn’t an exact, universal formula for calculating how much to charge cyber insurance policyholders. However, similar to other types of insurance, each provider can weigh a variety of factors to set premium rates. For cyber insurance, the main factors to consider are:
System Vulnerabilities: How likely is it that a cyberattack would breach a business’s security system?
Risk Severity: In the event of a cyberattack, how severe would the financial losses be?
Current Risk Management Practices: What is the business doing to proactively reduce the likelihood and impact of cyberattacks?
Unfortunately, methods for assessing cybersecurity risk are often outdated. In fact, many providers rely on a single PDF to gather critical information. Such methods are time-consuming and don’t show the whole picture. Patchy data leads to inaccurate quotes, which can leave your organization vulnerable to financial losses when clients file more claims than expected. With Trava’s streamlined risk assessment tools, you can provide quotes more quickly and with higher accuracy to protect both your clients and your organization.
How Much Does Cyber Insurance Cost?
Recent data shows that the average annual cost of cyber insurance in 2022 for businesses was between $500 and $5,000. It’s important to note that these costs can vary greatly depending on the buyer’s risk factors, coverage level, deductible amount, industry, and more.
Cyber insurance costs have also been trending upwards. According to Marsh, cyber insurance rates rose 110% in the first quarter of 2022, followed by a 79% growth during the second quarter. For the most part, a growing number of cyberthreats is responsible for cyber insurance rate increases. As cyberattackers use advancing methods to bypass security measures, insurance providers need to charge more to cover the costs of claims.
Cyber insurance costs increasing may cause potential clients to reconsider. However, as a cyber insurance provider, you can work with businesses to keep their premiums manageable—without taking on extra risk as their insurer. The way to do this is through advising. Start with Trava’s Cyber Risk Checkup that businesses can use to get a baseline security score for their web presence. From there, you can recommend security improvements, such as updated firewalls, employee training, or third-party data backups.
What Is the Average Loss Ratio for Cyber Insurance?
According to the National Association of Insurance Commissioners (NAIC), cyber insurance companies faced an average loss ratio of 66.4% in 2021. This was a slight decrease from 66.9% in 2020, but the average loss ratio is still significantly higher than it was in 2017 (32.4%), 2018 (35.3%), and 2019 (44.6%).
For additional context, the average loss ratios for other types of insurance were:
90% (large group markets), 72% (small group markets), and 88% (individual markets) for health insurance in 2021 (NAIC).
67% for private auto insurance in 2021 (S&P Global).
72.5% for property and casualty insurance in 2021 (NAIC).
In other words, providing cyber insurance comes with risk, but it can still be profitable when using accurate data to inform policy writing.
Is Cyber Insurance Worth the Cost? It Is With Trava Security.
Cyber insurance is worth the cost for policyholders, and it can be worth the risk for providers—with the right data. Trava Security gives you the information you need to confidently provide businesses the coverage they need and qualify for. With Trava, you can:
Accurately and efficiently assess risk.
Recommend cybersecurity improvements.
Create policies that protect your clients and your business.
Schedule a demo to learn how.
