The role of flexibility in cyber insurance and regulation

Flexibility will have a big impact on the development of cyber insurance over the next ten years. It is one of the fruits of technological progress and the key to effective regulation.

A corporate survey by Swiss Re and IBM® on risks arising from interconnectedness over a 10-year horizon, shows emphatic agreement among corporations and insurers that the supply of flexible insurance solutions will increase. Moreover, an overwhelming majority of companies (81%) will want to buy such products.

The methods used by cyber hackers and criminals are changing all the time. This is a big problem for insurers as it denies them the opportunity to accumulate reliable data. A flexible tool, such as real-time risk measurement would add transparency. It would also facilitate customised solutions, which was another wish expressed by many respondents.

Regulation is still in its infancy but governments do recognise the need for oversight in managing cyber risks. The US already regulates some industries, such as finance and healthcare. The EU has also passed the General Data Protection Regulation (GDPR), to uphold data security. It will come into force in 2018. The EU/US Privacy Shield is another example of data protection regulation.

It was, however, interesting to see that the survey results were rather ambivalent regarding government intervention. The majority of respondents thought it would actually increase interconnectedness risks in the future. That could be because they view the state as a ponderous partner in a very dynamic area.

There is a danger that mandatory regulation could quickly become obsolete and take the focus away from managing threats as they evolve. To avoid this outcome, regulators will need to work with industry and avoid prescriptive measures in favour of other actions, such as mandatory reporting requirements or information-sharing initiatives.

Flexibility can thus be applied by the government and industry to gain an important strategic advantage in the quest for cyber security. Innovation and effective cooperation are the key to achieving a positive outcome.

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