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Inconsistent insurance cover for cyber risks leaves businesses exposed

A report by the International Underwriting Association (IUA), a body that represents companies that trade in the London insurance market outside Lloyd’s, has found that the coverage of cyber risks by conventional insurance classes can be inconsistent and often does not adequately cover the risks of cyber crime.

'Cyber Risks and Insurance – an introduction to cross class liabilities', which was produced with Norton Rose Fulbright, sets out ways in which insurers could provide cover for the growing number of cyber-related business losses. It also discusses the developments in data protection rules and the possibility of insurance specifically for cyber crime.

Cyber liability insurance cover has been available for about a decade but few corporate treasurers use it as part of the corporate risk management strategy.

Regulation such as the forthcoming EU General Data Protection Regulation, likely to be adopted in early 2016, is likely to push up the level of usage of cyber liability insurance. The regulation includes a legal obligation to inform authorities of a data breach without delay and individuals must be notified if adverse impact is determined. This mandatory obligation to report a data breach can be expensive and is part of the reason that specific insurance becomes an attractive option.

Chris Jones, the IUA's director of market services, said that cyber risk has been described as the biggest risk facing the insurance market in the last half century. “Legislators worldwide are taking an increasing interest in this area and organisations are having to meet ever higher standards of risk management. The London company market is playing a leading role in developing insurance solutions and there are extremely high levels of engagement across the two cyber risk communities run by the IUA.”

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