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Enhancing the Role of Insurance in Cyber Risk Management The digital transformation of economic activities is creating significant opportunities for innovation, convenience and efficiency. However, recent major incidents have highlighted the digital security and privacy protection risks that come with an increased reliance on digital technologies. While not a substitute for investing in cyber Enhancing the Role security and risk management, insurance coverage for cyber risk can make a significant contribution to the management of cyber risk by promoting awareness about exposure to cyber losses, sharing expertise on risk management, encouraging investment in risk reduction and facilitating the response to cyber incidents. This of Insurance in Cyber Risk report provides an overview of the financial impact of cyber incidents, the coverage of cyber risk available in the insurance market, the challenges to market development and initiatives to address those challenges. It includes Management a number of policy recommendations which support the development of the cyber insurance market and contribute to improving the management of cyber risk. Enhancing the Role of Insurance in Cyber Risk Management Enhancing the Role of Insurance in Cyber Risk Management This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries. This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2017), Enhancing the Role of Insurance in Cyber Risk Management, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264282148-en ISBN 978-92-64-28213-1 (print) ISBN 978-92-64-28214-8 (PDF) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: Cover © KrulUA/iStock/Thinkstock.com Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. FOREWORD Foreword The digital transformation of economic activities is creating significant opportunities for innovation, convenience and efficiency. However, as recent major incidents have highlighted, a growing reliance on digital technologies comes with digital security and privacy protection risks. This presents policy makers with the challenge of finding an appropriate balance between addressing these risks while allowing sufficient space for achieving the economic and societal benefits of digitalisation. The role of the nascent cyber insurance market in enhancing cyber resilience is increasingly being recognised by policy makers. This report, Enhancing the Role of Insurance in Cyber Risk Management, provides a series of policy recommendations aimed at enhancing the contribution of the cyber insurance market to managing this increasingly prevalent risk. The report examines the current state of the market, based on substantive input from the re/insurance companies, brokers and regulators that are directly involved in its development, and the obstacles that are impeding the market from reaching its full potential. It builds on the initial findings in the OECD report on Supporting an effective cyber insurance market which was presented to G7 Finance Ministers and Central Bank Governors in May 2017. The OECD has supported the development of strategies for the financial management of natural and man-made disaster risks for a number of years, including through the OECD Recommendation on Disaster Risk Financing which provides a framework for addressing the financial impacts of disasters on individuals, businesses and governments. This report was prepared by the OECD based on questionnaire responses received from the re/insurance companies and brokers active in this market globally and the ministries of finance and insurance regulators responsible for overseeing that market. It benefited from the support and input of the OECD Insurance and Private Pensions Committee, the OECD High-Level Advisory Board on the Financial Management of Large-Scale Catastrophes and the Working Party for Security and Privacy in the Digital Economy. The report contributes to the OECD Going Digital project which provides policy makers with tools to help economies and societies prosper in an increasingly digital and data-driven world (www.oecd.org/going-digital). Particular efforts have been invested in ensuring that this overview is up-to-date at the time of publication (November 2017) although readers should keep in mind that the nature of cyber incidents and the insurance market response is evolving rapidly. ENHANCING THE ROLE OF INSURANCE IN CYBER RISK MANAGEMENT © OECD 2017 3 TABLE OF CONTENTS Table of contents Executive summary ................................................................................................................................ 7 Chapter 1. Growing cyber risk and the contribution of insurance to cyber risk management .... 11 Notes .................................................................................................................................................. 15 References .......................................................................................................................................... 16 Chapter 2. Types of cyber incidents and losses ................................................................................. 19 Data confidentiality ............................................................................................................................ 22 System malfunction/issue ................................................................................................................... 33 Data integrity/availability ................................................................................................................... 39 Malicious activity ............................................................................................................................... 42 Notes .................................................................................................................................................. 45 References .......................................................................................................................................... 46 Chapter 3. The cyber insurance market ............................................................................................ 57 Stand-alone cyber insurance market ................................................................................................... 60 Additional services provided with stand-alone policies ..................................................................... 75 Coverage for cyber-related losses in existing (traditional) policies ................................................... 77 Notes .................................................................................................................................................. 81 References .......................................................................................................................................... 82 Chapter 4. Cyber insurance market challenges ................................................................................ 93 Factors affecting the price of cyber insurance .................................................................................... 94 Factors affecting the willingness-to-pay for cyber insurance coverage ........................................... 101 Notes ................................................................................................................................................ 104 References ........................................................................................................................................ 105 Chapter 5. Addressing challenges to cyber insurability ................................................................. 111 Improving the capacity to quantify cyber risk .................................................................................. 111 Addressing the challenges to understanding cyber insurance coverage ........................................... 124 Other approaches to supporting greater market capacity ................................................................. 127 Notes ...............................................................................................................................................
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