Mandatory cover: The key to acute cyber risk exposure?

The cyber insurance sector is approaching a watershed. As the market starts to mature, regulation will increase. Experts also believe cyber-attacks will start to hit harder and more often. Governments are concerned about losses in certain sectors. Could mandatory insurance be the solution?

According to a corporate survey on digital interconnectedness risks, conducted by Swiss Re and IBM®, the answer is a resounding yes. 80% of insurers and 76% of companies surveyed believed cyber insurance should be mandatory for some industries, with financial services, airlines and e-commerce at the top of the list.

There is certainly a strong case in favour of mandatory cover. For a start, it could be crucial to a company's survival in the aftermath of a major cyber incident. Would Target have survived the costs of its data breach in 2014 without insurance? Possibly not: according to the law firm Mintz Levin, the resulting loss will exceed USD 252 million.

Mandatory cover would also make companies pay more attention to their cyber security. Insurers would require policyholders to invest in employee training and review their cyber defence and resilience programmes at regular intervals. That would establish a good basic industry-wide level of security.

On the other hand, introducing mandatory cyber insurance will increase the role of government in the market. Most of the companies surveyed (65%) thought government intervention would increase cyber risks. Perhaps the message is that mandatory cover is desirable but only if the details governing its implementation are left to the private sector.

In the final analysis, it's up to government to decide whether the budget required to implement mandatory cover can be justified. The survey respondents also had a clear-cut opinion on this point: 76% of companies and 75% of insurers believed mandatory cover will be in place for many industries by 2025.  

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