Risk quantification can be a potent tool for effective cyber insurance

If you must answer questions on how much car insurance you might need to pay in the coming year, what would be your answer? You may not be able to give an exact number, but you’d easily be able to give a ballpark figure based on your driving record, how long you have been driving, the total cost of your vehicle, and how much more you plan to use it if you take liability. 

Whether evaluating car insurance, property insurance, or even credit insurance, it is possible to make an educated decision on coverage based on data.  

Can you say the same about cyber insurance? Is it possible to estimate how much you need? Is cyber insurance worth the cost?  

Cyber insurance can cover the costs of notification, remediation, data recovery, and more, depending on the scope of the policy. However, if an organization is aware of a cyber vulnerability, but has not corrected it, it will not be covered. Furthermore, it does not address costs that rise from inadequate cyber security processes or employee error. 

Cyber risk quantification for insurance decisions

Cybersecurity incidents and data breaches have seen a major upsurge across industries. The last two years have seen a major uptick in online transactions in the financial services and insurance sector, giving a boost to cyberattack cases for corporates. 

According to a report by the Data Security Council of India, the cyber insurance market has witnessed a growth of 40% over the past two years in India. India’s corporate sector’s cyber insurance coverage ranges from $1 million to 100 million a year and is growing at 35% annually. 

With a significant rise in the number of cybersecurity incidents, cyber claims are also increasing. Organizations are paying more for the same level of protection or even lesser.

Risk quantification helps understand ROI

Considering the high-impact and high-frequency nature of cyber threats, there are a few questions that organizations need to find answers to. How can they estimate details on the coverage they will require? Also, once the coverage is ascertained, how can they know when they are approaching their limits?

For satisfactory answers, they need to rightly understand their risk exposure and return on investment. While insurers have their application processes, it’s largely useful to understand and quantify cyber risks in monetary terms which means organizations will have to express the actual loss they could face in financial values.

This process goes a long way in helping decision-makers understand their cyber risk exposure, prioritize the risks, and make informed cybersecurity investment decisions. Having a clear understanding of the amount of risk brings more clarity to the board and executive management for queries like what is the budget that is to be allocated to cybersecurity? What kind of risks need to be covered in cyber insurance? What is the amount of premium that should be paid? Is the entire investment in cybersecurity worth it? What kind of investment will be enough and so on. 

One way that makes it easier to prioritize risks based on their potential financial impact is by expressing key risk metrics, such as value at risk, risk exposure, expected loss, and impact -- in financial or monetary terms. It is up to businesses to choose whether they wish to pass the risk (by investing in cyber insurance), forgo the risk (if the necessary investment is more than the financial impact of the risk), or take actions based on their risk appetite.

Risk quantification tools can empower organizations to augment available resources by steering investments toward the right technologies at the right time, after considering risk priorities. Organizations should leverage advanced cyber risk quantification and simulation tools to accurately understand and analyze the overall cybersecurity posture in monetary terms thus making risk-aware cybersecurity investment and cyber risk management decisions.

Bolstering cyber resilience

To manage the risks of today’s business landscape, organizations need to strengthen cyber resilience and implement an integrated cyber risk management program. It helps to have this program reinforced with cyber risk quantification and constant control monitoring capabilities.

Shankar Bhaskaran

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Shankar Bhaskaran is the Managing Director, India at MetricStream.