How Shifts in Cyber Insurance Are Affecting the Security Landscape

COMMENTARY

The rising cost of cyberattacks, including downtime, investigations, lawsuits, ransoms, and more are prompting cyber insurers to re-examine underwriting and encourage greater cyber resiliency in their customer bases. With the influx of cyber-insurance claims stemming from the CrowdStrike IT outage and the exorbitant price of recovering from data breaches — $4.88 million, on average, according to IBM — the cyber-insurance industry will continue to self-correct and evolve to fit market needs while maintaining profitability.

Insurers will come away from July's widespread IT outage relatively unscathed, as the outages were caused by a vendor error, not a cyberattack, and because it was fixed fairly quickly. Still, insurer Parametrix estimates insured losses from US Fortune 500 companies will total $540 million to $1.08 billion, not even including Microsoft. Now, imagine this is a cyberattack that goes through a third-party software-as-a-service (SaaS) provider and takes down a similar swath of business, but recovery is slower, and companies must pay ransoms to recoup their data. How many billions of dollars will cyber insurers be out then? 

Because cybersecurity is still a relatively new corner of the insurance market, ambiguity remains around what should be covered, the role cyber insurance plays in potentially encouraging ransom payments, etc. There's no doubt that it's still finding its footing, figuring out in real-time and on a world stage how to insure companies against rapidly changing and advancing cybersecurity threats.

This evolution will be what finally causes businesses to face reality and prioritize cyber resiliency to ensure data is always recoverable in the event their primary network is taken offline or data is held for ransom. Companies may not take it upon themselves to invest in better data protection practices, and the cyber-insurance market ultimately will force their hand.

Cyber Insurers Drag Us Into the Future

Over the past five years, the rise of ransomware has shifted not only an organization's risk profile but also the estimated payouts. In many insurance policies, it's all about risk mitigation, but unless an underwriter can accurately assess the risk or implement requirements to mitigate the threat, it becomes a financial business risk for the insurance company. Therefore, cyber-insurance prices have significantly risen along with the bar to qualify for coverage.

Many of the new requirements focus on data storage and backups. Segmented, encrypted, and immutable backups are the industry standard, but because of limited resources, unawareness, or segmented cybersecurity teams, it hasn't always been a prioritized industry standard. Now, companies will have no choice but to up their game if they want coverage. Those who fail to adopt these requirements will be left without insurance or an effective recovery plan, unable to financially recover when the inevitable ransomware attack hits.

However, in June, businesses stood before the House Homeland Security Committee and told Congress that they are struggling to obtain cyber insurance, and even once insurance is secured, they struggle to understand the nuances of what's covered. Plus, ransom payments themselves are increasing as cybercriminals learn they can demand, and receive, large payouts. According to Chainalysis, the median ransom payment in 2024 was $1.5 million as of July, a huge increase from $200,000 in early 2023.

Because such a significant portion of companies are uncertain what is actually covered by their cyber insurance — around 40%, according to Sophos — they can't risk having to pay the whole ransom themselves or face never recovering their valuable data. Companies must do what they can to reduce their own risk.

Recoverable Data Is Its Own Form of Cyber Insurance

Companies can reduce the cost of attacks by ensuring data remains recoverable, mitigating operational downtime, and preventing the need to pay ransoms. Ransomware relies on the fact that production or backup data is made useless for organizations to recover following an attack, but with immutable backup in place, organizations ensure access to their data remains. This is especially true as ransomware is now targeting backups specifically.

Immutability is a must-have for any type of backup storage because it is time-based, not key-based like encryption. This means that there is truly no way (outside of destruction of the physical hardware) to alter or remove the backup data once it is written into a device that has object lock, i.e., immutability, enabled. You can truly maximize this strategy by encrypting backup data before writing it to immutable storage; that way, it's unreadable (unless you have the key) and unalterable. 

It's also important to ensure that a disaster recovery plan is in place that includes a multilevel backup solution and disaster recovery testing on a weekly and monthly basis to get ahead of any potential issues. Once these are implemented, keep copies of all the backup tests to prove to an insurance company that you have a lower risk factor. 

Ultimately, the goal of businesses and cyber insurers alike is to build more-resilient IT environments to avoid cyberattacks and the ransom, downtime, and reputation hit that come along with them. Law enforcement will continue to fight cybercrime, but there's no indication it will let up. Changes in the cyber-insurance market have the potential to disrupt the threat landscape by prompting the ubiquitous adoption of backup best practices and cyber resiliency.