14 April 2015
For the insurance industry, new risks and devising solutions to hedge those risks are fundamental business opportunities. At the same time, new products and new services can require that insurers acquire new capabilities. One such example of this is the "cyber risk insurance" that has been released by one major nonlife insurer in Japan. (1)
This new product is a comprehensive product that covers cyber risks related to business activities all in one policy. In the event that a company was accessed illegally or suffered a cyber attack, this insurance compensates policyholders by covering expenses including forensic investigations (crisis management response expenses) and covers claims for damages and litigation related to incidents such as leaked information.
The company that developed this product launched sales of corporate cyber risk insurance for customers in North America and Europe through an overseas subsidiary. The firm is looking to leverage its sales success overseas by developing this cyber risk product tailored to the Japanese market.
This product is pioneering in a number of ways:
The process of being considered for a policy itself entails a security management check of the company. For the insurer this inevitably involves new underwriting.
- Estimating premiums for cyber risk is both a challenge and also groundbreaking. There is a wealth of statistical data making it is easy to estimate the accident risks and set appropriate insurance premiums for insurance such as auto insurance, but for cyber risk the paucity of statistical data makes doing so a pioneering endeavor.
- In Japan, there is a precedent for insurance products designed specifically to protect personal information and, as such, there exists some sales performance data. However, such information is extremely limited when it comes to comprehensive cyber risk insurance products in Japan.
Increasingly a global approach will be essential. Cyberspace has no borders and there will come the day when the issue arises of compensation for legal damages filed abroad. Unlike conventional insurance such as that for leaks of personal information, this insurance covers claims for damages and litigation expenses filed overseas, meaning that ostensibly a range of support will likely need to be deployed in the future related to implementing these insurance contracts.
(1) Cyber Risk Insurance (Tokio Marine & Nichido)