The recent global IT outage, triggered by a botched update from security firm CrowdStrike (CRWD), has thrown various industries into turmoil. It affected over eight million devices relying on Microsoft Windows software (MSFT). This massive incident pulled the cover off current-day cyber risk and spotlighted software system connectedness and reliance. It also cornered cyber insurers and put them under increasing heat as growing insurance claims have the potential to be sprawling and cause significant financial losses, estimated in the billions.
The July cyber problem will likely become one of the most substantial cyber insurance loss events since the Ukraine NotPetya malware attacks in 2017.
Market Dynamics and Key Players
The cyber insurance market, valued at $11.9 billion in 2022, is projected to grow to $33.3 billion by 2027. The expected growth is likely to be driven by increasing demand for cyber protection and more sophisticated underwriting practices. Key players in the market, including Chubb (CB), AIG (AIG), Berkshire Hathaway ($BRK.B), Tokio Marine HCC (TKOMY), and several others, offer a range of products and services across various sectors with cyber security insurance being a small part. However, that department certainly will have its hands full during the coming years.
The Impact on Insurers
The full extent of customer loss is still calculated by insurers, but the potential losses are estimated to run into the billions. Aon (AON), the world’s biggest insurance broker, has noted that the incident will likely become the most significant cyber insurance loss event since 2017. Marsh (MMC), another leading broker, has reported that roughly 100 global clients have notified their insurers of potential claims, most of which are for business interruption or system outage. However, waiting periods and different coverage levels for cyber-attacks compared to IT outages may restrict the overall financial impact.
Market Outlook and Response
Despite the challenges posed by the incident, the cyber insurance market has shown signs of stabilization. Cyber insurance prices have fallen in recent quarters after significant increases in the previous two years due to a surge in ransomware attacks. This event could catalyze the industry, demonstrating the need for robust cyber insurance policies. Insurers like Beazley (BZLYF) have indicated that the outage will not affect their profit guidance for the year, suggesting resilience in the face of such challenges.
Key Takeaway
The global IT outage is a wake-up call, as it exposes the vulnerabilities inherent in a digitally interconnected world. It underscores the importance of comprehensive cyber insurance policies that cover a range of risks, including data breach coverage and cyber liability coverage.
As the cyber insurance market continues to evolve, insurers will have to adapt to the changing landscape of cyber threats by developing more sophisticated risk management tools and strategies. This incident will likely influence the future of cyber insurance, driving demand for more comprehensive coverage and potentially reshaping the market in the coming years.
