As Ransomware Soars, Insurers Mull Changes
As ransomware attacks soar, payment requests have begun to attract increased legal and regulatory scrutiny. In this complex environment, industry discussions over harm caused by cyber insurance grow more frequent.
Homeland Security Secretary Alejandro Mayorkas said cyberattacks increased 300% in the past year, especially ransomware attacks. He noted that victims of these attacks paid $350 million in 2020, although a recent report put the total cost of US ransomware attacks at nearly $3.7 trillion.
Alex Sharpe, principal at Sharpe Management Consulting LLC, pointed to a pattern of leaders opting to purchase cyber insurance “over a more effective protection mechanism because of cost.” He predicted that cyber insurance would become mainstream, particularly for non-regulated industries.
The Government Accountability Office published a report last month in which higher prices for cyber insurance were linked to increasing demand and rising insurer costs as a result of more frequent and higher claims.
Deep Instinct’s director of cybersecurity advocacy Chuck Everette points out that there are many drawbacks to relying on insurance as one’s ransomware strategy. He states insurance “is not a compensating control in place of a good security strategy” and that some elements of a cyberattack, such as fines and reputational damages, are not covered by insurance.
Standard and Poor’s announced in a recent report that financial institutions may face a ratings downgrade for poor cybersecurity. Governments also seem to be steeping up scrutiny on cyberattacks.
The European Council extended a sanctions framework that penalizes cyber-attacks against the European Union or member countries in May. The framework associates payment to listed persons as a potential sanction’s violation.
The US Department of Treasury’s Office of Foreign Assets Control issued a similar warning to US businesses in October. The Department of Justice also created a Ransomware and Digital Extortion Task Force to expedite investigations into ransomware attacks and to better pursue the attacks’ perpetrators. Sharpe noted that the Justice Department’s approach is similar to the EU sanctions framework as both hope to eliminate the business structures that allow these criminals to profit.
Some insurers are reconsidering cyber coverage. AXA announced in May that it would no longer issue cyber-insurance policies in France that reimburse customers for ransomware payments.
Newmeyer & Dillion LLP legal partner Jeff Dennis told this publication that other insurers may soon follow AXA’s lead. He stated that “awareness is key” to keep track of what may happen in the cyber insurance industry.
Insurance companies and their clients may also find themselves the victim of an increasing amount of cyberattacks. This phenomenon might occur because some hackers may believe that companies with coverage would be more inclined to pay higher ransomware demands.
Cyber insurance provider CNA Financial and AXA’s Asia offices were both hit with ransomware attacks this year, raising industry concerns that attackers may have obtained policyholders’ information.
Given the possibility of more attacks, certain critical sectors that are a prime target for cyber-attacks due to their significance face drastically reduced coverage, according to the GAO report. Healthcare, education, and non-critical sectors are at risk for reduced coverage.
Hunton Andrews Keith LLC partner Andrea DeField told this publication that many insurers are limiting cyber coverage. She predicted corporate policyholders “coverage at renewal may look very different” than cyber insurance coverage in prior years.
Cyber insurers and customers face complex risks and legal uncertainty. Public companies are particularly vulnerable to regulatory ambiguity. Sharpe noted that it is “only a matter of time before shareholders take action” against a listed company for violating fiduciary responsibility in how the company responded to a ransomware attack.