Ransomware Losses Drive Up Cyber-Insurance Costs

Ransomware payouts are putting the squeeze on cyber-insurance companies and resulting in higher premiums for organizations that want protection against the threat.

Larger companies are getting hit with bigger price hikes than midsize and small companies because they are the ones that are experiencing the biggest losses, a new study by small-business research firm AdvisorSmith shows.

The company's review of cyber-insurance premium costs, rate filings, and other insurance data over the past six months shows that the current average cost for $1 million in cyber-liability coverage for a low-risk business with less than $1 million in revenue is $1,589. That's about 7% higher than the average cost of $1,485 per year for comparable coverage in 2020.

Adrian Mak, CEO of AdvisorSmith, says premiums for midsize and large businesses have gone up substantially more — between 10% and 40% on average over the past year. A midsize business with more than $100 million in revenue currently can pay anywhere between $5,000 and more than $10,000 in premiums per $1 million in coverage. Insurance premiums for large businesses tend to vary widely and are harder to estimate because many insurance contracts are customized and negotiated confidentially for each enterprise, Mak says. "It's common for larger businesses to have a high deductible or to self-insure a large portion of their risk because they have stronger balance sheets than small businesses," Mak says.

Much of the price hikes is tied to ransomware-related losses. AdvisorSmith's data shows victims paid about 311% more in ransoms in 2020 compared with the previous year. In the first quarter of 2021, the average ransom payment, according to an analysis by Coveware, was $220,298 — up 43% from just the previous quarter. The median payment jumped 58% from $49,450 in the first quarter of 2020 to $78,398 in this year's first quarter.

"Losses, especially ransomware losses, are up this year, and this is causing premiums to rise for both small businesses and large enterprises," Mak says. "Larger enterprises are experiencing larger losses, as they have larger data systems that are enticing to hackers, so their rates have risen more when compared with small businesses."

The rising ransoms — and major attacks like those against Colonial Pipeline and JBS Foods this year, involving millions of dollars in payouts — have spooked the cyber-insurance industry. AdvisorSmith found that insurers in high-risk sectors such as healthcare and education have begun reducing their exposure by reducing coverage, lowering coverage limits, and putting a lower cap on ransomware payouts. Others have begun adding more restrictive policy terms and including additional exclusions, the research firm found.

Mak says that 73% of agents and brokers that the Council of Insurance Agents and Brokers recently surveyed found that insurance companies had less risk capacity in the first quarter of 2021. "It means that the insurance companies are declining more insurance applications or offering lower limits to approved applications than before," he says.

More Stringent Security Requirements
Ara Aslanian, CEO of Inverselogic, a firm that works for cyber insurers to check if an applicant company has proper security policies in place, says many insurers have begun demanding more from firms that want to buy insurance coverage.

"Minimum security requirements have definitely changed, especially the way insurers review the companies," Aslanian says. Previously, the checking process was mostly conducted by self-assessment, which meant the insurers would send companies self-assessment sheets for them to check the boxes. "Now insurers are hiring professional companies to verify if the systems or protocols these companies have in place really reach the standard and fulfill [requirements]."

In recent months, other studies and developments also have shown ransomware attacks having an impact on the cyber-insurance industry in different ways. In May, insurance firm AXA announced that it would stop reimbursing French companies for any ransomware payments they made to an attacker. The decision was apparently based on concerns that insurance coverage for ransomware was fueling more attacks and driving companies to blithely outsource risk to insurers, without ensuring proper security controls were in place first. Some industry experts viewed AXA's landmark policy decision as likely spurring others to do the same. Others insurers Allianz and Coalition have reported an increase in ransomware-related claims and in the average costs associated with these attacks.