Cyber insurance can significantly reduce losses through geographic and industry diversification and mitigation measures
CyberCube reported on Thursday that the cyber insurance market can reduce catastrophe risk exposure by diversifying portfolios across geography and industry and adopting mitigation strategies to lessen the impact of major attacks. The current market is highly concentrated in the United States; combining diversification across geography, industry, revenue, and technology can reduce risk by 40%. Additionally, adopting mitigation measures such as patch management, network segmentation, and robust data backups can cut losses by nearly 60%.
A report released by CyberCube on Thursday shows that the cyber insurance market can significantly reduce catastrophe risk exposure by diversifying portfolios across geography and industry, and by adopting mitigation strategies to reduce the impact of major cyber attacks.
The report notes that the current cyber insurance market is highly concentrated in the United States. CyberCube predicts that if portfolios are diversified by combining geographic, industry, revenue size, and technological factors, risk exposure could be reduced by 40%.
"Due to the high concentration of risk, attacks affecting the United States could have extremely high severity," said Jon Laux, Vice President of Analytics at CyberCube, in an interview with Cybersecurity Dive, a sister publication of CFO Dive.
The report states that the United States currently accounts for about two-thirds of the global cyber insurance market, with single-point-of-failure risk concentrated in the U.S. market, particularly among managed service providers and major cloud service providers.
The report cites concerns about single points of failure in natural disasters as a reference. Although Florida's hurricane risk is the largest single risk in natural disasters, homeowners in that state account for only 11% of U.S. homeowners' insurance premiums.
In contrast, the concentration risk in the technology sector is quite different. Report data shows that Microsoft Windows holds a 72% share of the desktop operating system market, and Amazon Web Services (AWS) holds more than 30% of the cloud services market. Therefore, CyberCube believes it will be very difficult to significantly diversify portfolios beyond these potential exposures.
The report also shows that adopting more robust risk mitigation strategies—such as comprehensive patch management, computer network segmentation, and robust data backups—can reduce losses by nearly 60%.
The report comes amid rising concerns in the cyber insurance market. Swiss Re recently warned of potential rate deterioration, and market attention on single-point-of-failure events continues to increase.
In recent years, there have also been discussions within the industry about government support (i.e., government backstop) mechanisms to help the industry withstand catastrophic events.