IRDAI: Cyber insurance to be integrated with home policies
A leading regulatory body in India has put forward plans to ‘popularise’ cybersecurity insurance in the wake of COVID-19
The Insurance Regulatory and Development Authority of India (IRDAI) held its annual panel last week and concluded that clarity and availability of cyber insurance must be made more widely available to companies and householders across the sub-continent, reports suggest.
India saw a marked rise in cybercrime incidents in 2020, following the work-from-home directive that saw millions of employees connecting remotely to company networks. In the first quarter of 2020 alone, there was a 37% increase in large-scale security breaches, according to local press reports.
The panel pinpointed several areas in need of reform, which will increase the availability and appeal of cyber insurance coverage. They noted there should be;
· A common reference framework to bring clarity to coverage
· More cyber products to ‘popularise’ the coverage
· The flexibility of cyber cover to suit customer requirements
· A minimum cover added to general insurance policies (home cover)
· Products that offer solutions rather than just loss mitigation
Insurance companies first introduced cyber cover in India in 2017. But according to data, very few insurers have filed the policy with regulators. This looks set to change following the spate of severe security breaches among global giants (Microsoft SolarWinds) and the increased digitisation of companies worldwide.
The panel pointed out that shifts have occurred in e-commerce, education and banking and that insurers must offer better solutions rather than just loss mitigation products.
The IRDAI report also highlights that despite the growing losses incurred by cybercrime, only a small percentage of companies and homeowners are insured against it, and also assume their traditional cover will mitigate loss. “Even those industries which realise the scale and extent of their exposures, like the financial institutions, perceive cyber insurance coverage as too narrow or ambiguous to assure them of adequate recovery in the event of a loss,” it states.
IRDAI's findings are echoed by the recent UK report that shows businesses internationally are not adequately covered against cyberattacks. The problem, it seems, is endemic.
It states, “The uptake of cyber insurance, particularly by small to medium enterprises (SMEs), remains low. Existing research suggests that some of the overarching factors explaining this are: the high cost of policies and the difficulties insurers face in pricing premiums; confusion over what types of incidents insurance policies cover (and the issue of ‘silent cyber’); and a lack of understanding of risks stemming from cyber incidents.”
However, the IRDAI panel noted that challenges exist in the cyber insurance cover sphere, most notably because of the shifting sands of cybercrime incidents and technological development.
It stated that insurance companies themselves have been reticent to adopt such products due to small coverage limits and high deductibles. It added that lack of enthusiasm by insurers to design cyber insurance plans is down to the unpredictable nature of cyber breaches, limited data and the swiftly changing technology space it occupies.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.