Cyber crime becomes a multi-billion dollar industry

We are all aware of the threats and potential liabilities that we are presented with in the financial services industry as people and companies who provide a product and service to clients. One of the biggest industry threats last year was the rapid rise of cyber crime, a threat that will no doubt be an issue in 2017.

Building capacity

We have all heard about the challenge that cyber crime poses; but with little information about the value of cyber crime in the industry, so how can brokers prepare themselves to fight this challenge?

An article on the Financial Times website, by journalists Madhumita Murgia and Oliver Ralph, shows how the threat is gaining pace internationally.

According to the report, the total written premium for cyber crime around the world is estimated at $2.5 billion, and Allianz predicts that this could reach $20 billion by 2025.

Inga Beale, Chief Executive at Lloyds of London, points out that cyber is becoming a serious concern for the insurer who introduced 15 different types of cover just for cyber in 2016 in anticipation of demand in this area rising in 2017.

A measured approach

By all accounts, approaching the cyber threat with any measure of success will have to be done using a proactive but measured approach.

The Financial Times report shows that the US Government has specific steps that need to be taken when dealing with a cyber threat. These steps are regulated and governed by policymakers from the White House.

Demand will be boosted again when new European Union data regulations come into force in 2018. These regulations outline how companies should react when they experience a data breach. Companies that do not follow this future protocol could face possible fines of up to €20 million, or 4% of the company’s annual worldwide turnover.

Dawn of a new era

Cyber brings many challenges. One of the biggest of these is the fact that companies are facing dynamic, unseen criminals who are mostly on the front foot and are eager to remain ahead of the game.

This means that the industry’s approach needs to be different, top to bottom. Speaking to the Financial Times, Andrew Griffin, Chief Executive of Regester Larkin – a crisis management firm now owned by Deloitte – pointed out that in 2016, between 60 to 70% of simulated training exercises the company did was in cyber scenarios. "It is a growing area of interest for people in our field," said Griffin.

This provides specific insight into a market where there are skills in the industry to facilitate this. Does South Africa have the necessary skills base to run such simulated training? This in itself is another challenge that is associated with cyber crime; the South African insurance industry has good underwriters and has a good underwriting talent base, do we have the skills necessary to focus on specialised threats?

Specialised skills are needed to combat a specialised enemy; Regester Larkin must have seen the need for simulated training after doing an analysis of its business. Being aware of the skills needed in a company is important.  

Increased velocity

A report by Joe Rosengarten on ibamag.com shows that there are now more than 60 insurers offering standalone cyber insurance policies in America. According to analysts at PricewaterhouseCoopers, the corporate cyber insurance market in the country is currently worth more than $3 billion annually and is expected to grow to more than $7.5 billion in premiums by 2020.

Research also shows that cyber breaches are becoming more expensive for an organization affected: the average breach in 2016 cost $7 million, which represents the third-costliest business risk last year.

Cyber criminals carry out their crimes away from mainstream society and are often protected by layers of high-tech encryption and technology. Many choose to receive payment through bitcoin; this is one of the world’s fastest growing forms of currency which allows for online anonymity.

All of this activity means that experienced cyber insurance underwriters, and a measured approach to combatting cyber crime, is now in high demand.

Editor’s Thoughts:
Being forewarned is being forearmed; no business man or woman wants to operate off the back foot fighting from the trenches. Perhaps you have a role to play in educating your clients on cyber liability so they too can play a role in managing this threat.  Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.