Are finance executives misreading the fine print in cybersecurity insurance coverage?
A survey commissioned by FM Global revealed that 70% of surveyed 100 senior financial executives from some of the world’s top companies may be doing just that. Forty-five per cent said they expected their insurer will cover “most” related losses from a cybersecurity event, and 26% said they expected their carrier will cover “all” related losses.
According to FM Global, many of the losses they foresee are rarely covered by insurance.
Effects not covered but for which financial executives have a false sense of expectations include:
- Degradation of the company’s brand/reputation (46% said this was a likely effect of a cybersecurity event)
- Increased scrutiny from the investment community (40%)
- Decline in revenue/earnings (38%)
- Introduction of regulatory compliance problems (35%)
- Decline in market share (24%)
- Decline in share price (24%)
There was one more choice: “New costs to mitigate the loss,” cited by 53 per cent of senior financial executives. Indeed, many new costs—including expenses related to restoring data or equipment—would be covered by first-party cyber insurance or property insurance, according to FM Global.
Litigation and customer notification costs would be covered by third-party insurance. But the rest of the listed costs in the study would likely have to be absorbed by the victimized company. Moreover, more than half said financial recovery from a substantial cybersecurity event would take months to years.
Kevin Ingram, executive vice president and chief financial officer at FM Global, warns that cyber insurance may be creating a false sense of security among financial executives.
“While insurance is an essential part of the risk management formula, there are losses related to a cyberattack that insurance cannot cover—like damage to a company’s reputation, lost market share, missed growth opportunities, decreased valuation, and losses stemming from the increased cost of capital. That’s why we’re so committed to helping our clients prevent loss in the first place,” he concluded.