The Deloitte Center for Financial Services just issued a report discussing why cyber insurance has yet to take off. “Demystifying cyber insurance” is an excellent summary of the challenges facing the nascent cyber insurance industry. The authors identify a fundamental problem early in the report: a dearth of data creates a vicious circle that limits both underwriters and customers. Briefly, while cyber insurance underwriters have access to external assessments of the cyber threats a customer faces, the customer’s network itself is a black box.
The situation is analogous to underwriting a life insurance policy based only on the neighborhood the customer lives in. Underwriters ask: Does the neighborhood have indoor plumbing and a modern sewer system? Is garbage disposed of properly? Is the community suffering from serious communicable diseases? What criminal activity exists?
All this information is relevant and helpful, but the key missing element is a physical exam of the customer to determine his or her current health profile. Is the applicant overweight? A smoker? An active athlete? Such an exam provides a much more specific (and actionable) assessment of a customer’s health risk to inform life insurance underwriting.
The same applies to cyber insurance. Underwriters need to understand not only cyber threats in the environment, but also the health of a specific network. Are all parts of the network identified? Are all network devices set up properly? Are known vulnerabilities reachable for exploitation?
Ideally, this assessment would involve modeling the network and distilling complicated network security risks into an understandable and comparable score, similar to a credit-worthiness score. Of course, modeling a network requires a customer’s approval, so the approach must be fast, accurate, and cost-effective.
Cyber insurance promises to be a critical element in effective cyber security management. The “dearth of data” is a significant obstacle to cyber insurance development, but the effective use of network risk scoring will be crucial to break the vicious circle.