Every week, there seems to be a major new data breach that impacts tens of thousands – if not millions – of people. Moreover, words like “phishing” and “malware” have officially tipped into the cultural mainstream. And just about everyone knows someone who has been recently hacked, in the form of identity theft or outright fraud. So it’s perhaps no surprise that major insurance companies are creating personal cyber insurance products specifically designed to cover any loss or liability in the event of a cyber attack.
Details of the new Swiss Re report on personal cyber insurance
In fact, a new Swiss Re report details how quickly the market is growing, and exactly why personal cyber insurance products are so attractive to people who spend a lot of their lives online. According to Swiss Re, the global market for personal cyber insurance could be worth as much as $3.1 billion by the year 2025. That’s the high end of the predicted range. A more conservative figure would be $1.6 billion – not quite as impressive, but still a billion-dollar market opportunity in just over five years. This phenomenal growth in the market for personal cyber insurance would largely follow the same trajectory as the market for commercial cyber insurance, which is projected to become a $7.5 billion to $10 billion market opportunity by the year 2020.
In a survey that Swiss Re conducted for the report, just over one-half (56%) of respondents said they would be willing to buy personal cyber insurance. However, rather than purchasing a standalone policy, for many respondents, the clear preference is for “cyber extensions” that could be added on to existing policies for home, motor or health. Thus, if your home has been transformed into a “smart home” with smart meters and devices connected to the Internet, you might purchase a cyber extension on your homeowner policy designed to protect you in the event that someone hacks your home, causing you personal financial loss.
What, exactly, is personal cyber insurance?
Given the newness of the cyber protection market category, it’s clear that the major insurance companies are, first, trying to figure out to whom they should pitch the product; and secondly, trying to figure out what should be included. In terms of a target market, it appears that the most likely candidate (for now, at least) is the wealthy homeowner (e.g. a vice president of a major company) with something very real to lose. Most of the first personal cyber insurance policies, for example, are designed to cover losses up to $250,000. According to insurers like Chubb, that would be enough to replace the smart lighting system in your connected home, order a “white glove” consultant to come and clean up the damage, and potentially, pay off any ransom fees using Bitcoin.
According to Swiss Re, personal cyber insurance products should, as a minimum, cover the cost of any financial losses due to financial fraud or ID theft; any cyber extortion fees; and the costs of any IT specialists removing malware from devices and replacing any lost data from your computer operating system. (Presumably, wealthy customers are very concerned about hackers draining their bank accounts, stealing their credit card information and extorting tens of thousands of dollars from them.)
Of course, there are doubtless going to be all sorts of bells and whistles added on to personal cyber insurance policies. For example, AIG now offers a “Family CyberEdge” policy that covers not only ransomware and network infiltration, but also “cyber bullying.” (This sounds good, but it’s hard to imagine a huge insurance company paying out significant sums of money if someone writes a series of mean tweets about you on Twitter.)
Should you buy personal cyber insurance?
The big question for many people is whether it’s actually worth it to purchase a personal cyber insurance policy. Here is where you will have to do a little cost-benefit analysis, because you might be paying for something that you don’t really need. For example, according to the Federal Trade Commission (FTC), the average cyber fraud report from a millennial customer is just $200, while the average cyber fraud report from an older Baby Boomer is just $1,200. Now compare those two figures to the average policy size – $250,000 in losses – and you can see why personal cyber insurance is still very much a niche market.
Moreover, another question to ask is whether you’re better off spending the money for a personal cyber insurance premium on other must-have products for protecting your digital identity. For example, many subscription-based ID theft-monitoring services charge just $9.99 per month. And many financial services companies now provide free fraud alerts for all credit and debit card customers.
And will insurance companies actually pay out the claim?
When people purchase a personal insurance policy, they naturally expect that insurers that offer cyber coverage will pay as long as the claim is reasonable and can be backed up with documented proof of loss. However, that might be a misguided assumption, especially if your policy covers third-party claims.
One test case that everyone is watching right now is in the commercial cyber insurance sector, where consumer food giant Mondelez is taking Zurich to court for failing to pay out a claim. Mondelez says it was the victim of a cyber attack, but Zurich is refusing to pay because it claims the cyber attack was actually an “act of war,” so it shouldn’t be forced to pay. And a recent report from Mactavish in the UK seems to support the notion that there are going to be plenty of disagreements about what claims insurers are actually required to pay.
The big takeaway lesson, then, might just be “Buyer Beware.” Always know what your personal cyber insurance covers, what your total coverage amount is, and what sorts of situations might negate coverage. For example, Chubb recommends customers use a specific brand of Wi-Fi router to protect a home network. Always assume that insurance companies are going to do everything they can to avoid paying a claim.
In coming years, personal cyber insurance might just be a necessity, given how brazen cyber criminals are becoming, so this is definitely a market sector to watch. We’ve already seen how quickly commercial cyber insurance has grown in popularity, so it’s perhaps only logical that personal cyber insurance will also see a similar sort of exploding popularity over the next few years.