Cyber Insurance Audit: Identifying Vulnerabilities and Loss Drivers

A cyber insurance audit is a thorough examination of your organization's cybersecurity posture to identify vulnerabilities and potential loss drivers. This audit helps ensure that your cyber insurance policy is aligned with your current security practices.

Cyber insurance audits typically involve a comprehensive review of your organization's security controls, including network architecture, data storage, and employee training. This review helps identify weaknesses that could lead to a cyber attack or data breach.

The goal of a cyber insurance audit is to provide a clear picture of your organization's cybersecurity risks and recommend improvements to mitigate those risks. By addressing these vulnerabilities, you can reduce the likelihood of a cyber attack and minimize potential losses.

During a cyber insurance audit, your auditor will likely examine your organization's incident response plan, data backup and recovery procedures, and employee security awareness training.

Supply chain vulnerabilities are a growing concern for organizations, with 41% of companies surveyed by the World Economic Forum having been affected by a third-party cyber incident.

The rise of software supply chain attacks is expected to increase further, with costs incurred by businesses globally estimated to grow from $46 billion in 2023 to $60 billion in 2025, according to Juniper Research.

Small and medium-sized suppliers are being increasingly targeted by hackers, who aim to later hack into their larger customers' systems. This highlights the importance of conducting a comprehensive cyber risk audit to identify vulnerabilities and weaknesses in policies and incident response.

Major loss drivers can be attributed to various factors, including natural disasters, cyber-attacks, and supply chain disruptions. Cyber-attacks are a significant concern, with 63% of companies experiencing a data breach in the past two years.

Many companies have been affected by the growing threat of ransomware, with a 50% increase in attacks in 2020 alone. This highlights the need for robust cybersecurity measures to protect against such threats.

Supply chain disruptions can also have a devastating impact, with 75% of companies experiencing a loss due to a single-day disruption. This emphasizes the importance of having contingency plans in place to mitigate such risks.

Natural disasters, such as hurricanes and wildfires, can also cause significant losses, with 40% of companies experiencing a loss due to a natural disaster in the past year. This underscores the need for companies to have a disaster recovery plan in place.

Data breaches are a growing concern, especially with the increasing amount of data being generated and shared. By 2024, privacy regulation will cover three quarters of consumer data worldwide, but 60% of all regulated global entities will struggle to comply with intensifying data protection regulation and privacy requirements.

5G technology is driving mobile data growth, with 5G's share of mobile data traffic expected to surge to 76% by 2029. This will lead to a significant increase in video traffic, accounting for 80% of all mobile data traffic by 2029.

The human element plays a crucial role in data breaches, with approximately 90% of instances involving human error, despite the use of AI-enhanced spear phishing tactics.

Data breaches can result in significant financial losses, including legal fees, breach notification expenses, and fraud monitoring costs. Cyber insurance can provide vital resources to help recover from a data breach.

The following types of data breaches are covered by cyber insurance:

Munich Re's data shows the following ranking in terms of the proportion of privacy claims, including wrongful disclosure and wrongful collection, by industry sector.

Supply Chain Vulnerabilities are a major concern for organizations today. Dependencies on software and hardware supply chains and digital services will continue to rise tremendously.

Hacks across networks of suppliers, manufacturers, and providers within digital supply chains (IT/OT/IoT) are expected to increase further. Organizations will also witness a greater number of "supply chain attacks as a service", opening up this field to other less tech-savvy hacker groups.

A staggering 41% of companies surveyed have been affected by a third-party cyber incident, according to a World Economic Forum study (WEF 2024). Small and medium-sized suppliers are being increasingly targeted with the aim of later hacking into their larger customers' systems.

The expected rise in costs incurred by businesses globally due to software supply chain attacks is estimated to grow from US$46bn in 2023 to US$60bn in 2025, as reported by Juniper Research.

Detecting active hacking is crucial to avoid major incidents. Our Security Audit can ensure that all endpoints are checked for traces of hackers or hacking attempts, past or present.

The chance of a hacker being on your network and misusing your systems is a significant risk. Early detection is key to preventing a major incident.

A Security Audit can identify signs of hacking attempts, such as suspicious login activity or unauthorized access to sensitive data. This helps to prevent data breaches and protect your business.

Regular security checks can help you stay one step ahead of hackers. By monitoring your network and endpoints, you can quickly identify and respond to potential threats.

A Security Audit can also help you identify vulnerabilities in your systems that hackers could exploit. By addressing these vulnerabilities, you can reduce the risk of a hacking incident.

A risk audit is a thorough examination of potential risks and vulnerabilities in a system or organization.

Digitpol's Cyber Risk Audit is a comprehensive audit designed to identify cyber security weaknesses and gaps in policies and incident response.

This type of audit provides an independent risk score to the insurance and reinsurance sector, helping them to better understand the level of risk associated with a particular ICT infrastructure.

The outcome of a cyber risk insurance audit is to identify a cyber risk for the current ICT infrastructure to be insured.

A well-conducted risk audit can help organizations to identify and mitigate potential risks before they become major problems.

To qualify for cyber insurance, businesses need to demonstrate that they're reducing potential damages as much as possible. This means identifying and addressing system vulnerabilities, such as outdated firewalls and untrained employees.

To assess system vulnerabilities, use Trava's Cyber-Risk Checkup to get a baseline evaluation. This will help you identify areas for improvement and prioritize your efforts.

Risk severity is also a crucial factor in determining cyber insurance eligibility. This refers to the potential financial damages in the event of a data breach, which can impact the cost of premiums and the amount of coverage a policy holder should have.

To reduce risk severity, businesses should focus on proactive measures such as increasing employee training, updating their security systems, and developing a disaster recovery process.

Artificial intelligence has become mainstream with the launch of ChatGPT, but its long-term impact on economies, societies, and geopolitics remains difficult to predict.

Cyberattacks are expected to become increasingly automated, personalized, and cheaper to distribute at scale in all languages, using AI-driven phishing emails and vishing calls to scam victims.

The development of new malicious large language models (LLMs) like WormGPT will equip less tech-savvy actors with attack capabilities, making cybersecurity a growing concern.

AI will also augment the efforts of cyber defenders, strengthening detection and response capabilities, and improving attribution of cyber-attacks to adversaries.

The EU Artificial Intelligence Act is just the beginning, and more state-driven efforts will follow in the field of AI governance and regulation.

AI will be widely deployed in the insurance sector, enhancing risk assessment, offering more efficient and customized coverage, and improving incidence monitoring and responses.

Some expected use cases of AI in the insurance sector include:

AI cannot replace the expertise and knowledge required for excellent understanding and underwriting of cyber risk at present.

To qualify for cybersecurity insurance, contractors must meet specific requirements. These requirements focus on system vulnerabilities, risk severity, and current risk management practices.

System vulnerabilities are the weak points in your clients' security system. Do they use outdated firewalls, are their employees trained on best practices, and do they use apps with built-in security features? To get a baseline assessment, use Trava's Cyber-Risk Checkup.

Risk severity is determined by the potential financial damages in the event of a data breach. This impacts how much coverage a policy holder should have, as well as how high their premiums will be to offset potential claims.

Current risk management practices are crucial for reducing vulnerabilities and risk severity. Are they increasing training, updating their security systems, and developing and testing a disaster recovery process? By advising clients to take proactive measures against cybersecurity threats, you can decrease the amount of claims they'll file while also helping to protect their livelihood.

Here are the key requirements to meet:

Cyber insurance has helped build a layer of resilience, but it has natural limitations. The damage from catastrophic events like cyber war or infrastructure outage would exceed the industry's capacity.

The insurance industry can only do so much to mitigate risks. The most severe systemic cyber risks, such as critical infrastructure failure or cyber warfare damage, cannot be borne by the private sector.

Governments need to get involved to manage potentially catastrophic cyber risks. This is why dialogues on "governmental backstops" have already begun.

The insurance industry is prepared to help governments manage these risks. Munich Re, for example, advocates for the implementation of economic cyber protection as a precautionary measure of last resort.

The risks of digitization pose a challenge to society at large. The insurance industry plays its part in mitigating those risks, but it's not enough to cover the most severe systemic risks.

Jürgen Reinhart, Chief Underwriter Cyber, emphasizes that the industry is prepared to help governments find alternative solutions to manage these risks.

Cyber insurance has become a crucial component of cyber risk management over the past decade. It's essential for organizations and households to have a solid cyber insurance plan in place.

Cyber risk must be managed properly and collectively, as some risks cannot be fully managed by the private sector. This is a key takeaway from the growing cyber insurance market.

In just a decade, the cyber insurance market has evolved significantly, with insurers and risk modelers exploring new limits and possibilities of insurability. This rapid growth is a testament to the importance of cyber insurance in today's digital landscape.

Tackling insurability challenges and managing accumulation risk is vital for the long-term sustainability of the cyber insurance market. This requires a collaborative effort from insurers, risk modelers, and other stakeholders.

The cyber insurance market is still maturing, and prudent further development is necessary to meet future global demand. This demand is expected to require sufficient capacity from insurance and alternative capital markets.