Why the comparison between Cyber Risk and Natural Catastrophes falls short for Insurance Carriers
A common misconception we see regularly in the insurance sector is the comparison of natural catastrophes and cyber-related incidents. While both are an ever-changing risk to businesses worldwide, there is a large amount of differences between the two, calling for unique examinations and coverage for each. One major difference to note is that natural catastrophes do not evolve with the intent to bypass security defenses and cause maximum damage, such as cyber threats do. While hurricanes and earthquakes may keep some business owners up at night, those same owners don’t worry they’ll be singled out by these catastrophes, the way many businesses are by cyber-attacks.
Cyber and Natural Catastrophe Insurance: What are they?
As discussed in previous blogs, Cyber Insurance is liability insurance that helps protect your business from cyber crime and data breaches. Generally speaking, Cyber Insurance covers both first-party liability (damages to your business and information) and third-party liability (damages to your customer’s information or data).
On the other side, Natural Catastrophe Insurance protects a business from natural disasters such as earthquakes, floods and hurricanes, and even extends protections into human-made disasters such as terrorism. Natural Catastrophe events are typically excluded from standard hazard insurance policies, and therefore are necessary for businesses in locations that these events occur.
Where does the comparison fall short?
There are three main reasons why the comparison between a cyber crime and natural catastrophe fall short:
INTENT: As mentioned in the opening paragraph, a natural catastrophe does not intend to cause maximum damage. These events essentially occur and are gone without feeling or emotion behind it. Whereas with a cyber risk, the attack is meant to do maximum harm to both business data and profits, and in most cases, has intended targets. Being that cyber risks have already surpassed the costs of natural catastrophes, insurance providers typically offer a variety of supplemental options that take into account the intent of such risks. It does not benefit the insurance sector to compare the intent of each because it would lead to large gaps in coverage.
ABILITY: The second reason this comparison falls short is the ability of both the attacker and the victim. Both natural catastrophes and cyber attacks have the ability to do harm to businesses, but many of those same businesses do not have the same ability to fight a natural catastrophe as they do with cyber attacks. While some basic remediation tactics can be taken to prepare for a catastrophe, businesses are at the mercy of Mother Nature. With cyber attacks, businesses have the ability to enlist security procedures, multi-factor authentications and other tactics to keep hackers out. Insurance providers often offer different policies to help minimize the ability of attacks, but must analyze the unique ability of cyber threats and catastrophes differently, to make sure proper remediation steps are taken.
GEOGRAPHY: The last reason to not fall back on such comparisons is geography. A cyber attack can happen anytime, anywhere. Unlike cyber attacks, a natural catastrophe usually has a geography and season in which it occurs. For example, you typically you see hurricanes on the east coast and earthquakes on the west coast. The comparison falls short here because insurance providers must have different solutions and premiums in place for certain locations, in an effort to cover natural catastrophes, whereas with cyber threats, most levels of coverage are available throughout the United States.
As the Insurance Sector continues to navigate the complexities of policies covering natural catastrophes and cyber threats, it is important to make sure that your business is prepared and covered for both. If you’re in the market for new coverage or just want to discuss what might need to be added-on to your current coverage, speak with a Colony West representative today.