Cyber Insurance Firms Start Tapping Out as Ransomware Continues to Rise

In early May, global insurer AXA made a landmark policy decision: The company would stop reimbursing French companies for ransomware payments to cybercriminals.

The decision, which reportedly came after French authorities questioned whether the practice had fueled the current epidemic in ransomware attacks, may be just the beginning of a general retreat that will force companies to reconsider their attempts to outsource cyber-risk to insurance firms. Already, the massive damages from one damaging crypto worm, NotPetya, caused multiple lawsuits when insurers refused to pay out on cyber-insurance claims.

AXA's decision could signal the insurance industry agreeing that ransomware payments spur greater ransomware activity, forcing companies to deal with the direct damages of cyberattacks, said Ilia N. Kolochenko, founder and chief architect at security firm ImmuniWeb SA, in an assessment of the impact of the insurer's decision.

"On one side, this decision will likely hinder flourishing ransomware business and indirectly incentivize would-be victims to implement better cybersecurity and enhance their cyber-resilience," he said. "On the other side, the categorical ban will unfairly discriminate against enterprises who adequately care about their cyber defense but nonetheless fall victims to sophisticated attacks or because of their careless suppliers."

Ransomware payments continue to be a controversial capitulation to cybercriminals. Already, governments have started pressuring companies to not pay ransomware, with the US Department of Treasury's Office of Foreign Assets Control (OFAC) warning in October that businesses could be violating US law if they pay groups that have been put on the sanctions list. And almost two years ago, following attacks on many local governments and school districts, a group of more than 1,400 elected local mayors pledged to not pay ransomware groups.

Yet cyber insurance continues to be a popular way to mitigate risk. In the United States, direct cyber insurance premiums increased by 22% in 2020, reaching almost $3 billion, according to credit-rating firm Fitch Ratings. Yet profits for cyber insurance are narrowing as well, with the direct loss ratio — the fraction of policy revenues paid out for claims — for standalone policies rising to 73%, the firm stated.

The era of companies being able to confidently shift cyber-risk to insurers may be coming to an end, says Guy Caspi, co-founder and CEO of cybersecurity firm Deep Instinct.

"Insurance is designed to mitigate losses from various cyber incidents, including data breaches, business interruption, and network damage," he says. "It is not a compensating control in place of a good security strategy. Companies need to put security front and center and limit or mitigate the risks."

Efforts to dissuade companies from making payments are a direct attack to cybercriminals' bottom line, and they may have already taken note. AXA, the insurer that announced its intent to stop underwriting ransomware payments, fell prey to a ransomware attack only a week after making its announcement, when the company's offices in Asia reportedly hit with ransomware.

The attacks show that a long-view strategy of preventing cybercriminals from profiting will likely have an impact, said Chris Clements, vice president of solutions architecture at Cerberus Sentinel, a security compliance provider, in a statement.

"The timing of the attack on AXA being so close to their announcement that they will no longer cover ransomware payment reimbursements with their policies in France may indicate that they were targeted to make an example of organizations challenging their extortionary business model," he said. "It's tempting to laugh at the irony of a company that provides cyber insurance getting compromised, but the reality is that most organizations are vulnerable to the same attacks, and security is challenging to get right."

The ubiquitous vulnerability is a reality that companies — and insurers — will not be able to dismiss easily. Business and government need to continue operations, and delaying the recovery from an attack often comes with significant impacts to revenue and reputation. Within a day of the ransomware attack on Colonial Pipeline, the CEO had decided to pay about 75 Bitcoin, or about $4.4 million, even before concerns caused much of the southeastern United States resulted in gas lines and shortages.

Any attempt for a global ban on ransom payments comes with an enormous amount of pain, says Deep Instinct's Caspi.

"There is no doubt that ransomware is here to stay. In fact, 2021 has proven that organizations can no longer tolerate the risk of getting infected," he says. "Even with perfect backup systems, companies need to take a proactive stance to shield themselves from infection by deploying solutions that focus on prevention."