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Cyber Security

Disclosure by Yahoo! Inc. Stock not found YHOO Wednesday that an unauthorized third party stole data containing more than 1 billion user accounts in 2013 highlights the need for better cyber security in all facets of corporate life.

It also highlights the fastest growing insurance product in the U.S. – cyber insurance. PricewaterhouseCoopers has forecast that the current cyber insurance market of about $3 billion will grow to $7.5 billion in premiums by 2020.

At the same time most other types of insurance are declining, making this new area one getting special attention by insurance companies.


Attacks Happen Almost Constantly

Through Sept. 20, 2016, alone 687 breaches exposed 28.8 million records according to the nonprofit Identity Theft Resource Center.

In October, a distributed denial-of-service attack left hundreds of websites unreachable, including Twitter Inc. (NYSE:TWTRC) and Netflix Inc. (NASDAQ:NFLXC).

Other companies hacked in recent years include Target Corp. (NYSE:TGTB), Anthem Inc. (NYSE:ANTMB), JPMorgan Chase & Co. (NYSE:JPMC), eBay Inc. (NASDAQ:EBAYD) and The Home Depot Inc. (NYSE:HDC).

Attacks are coming so fast and furious companies can barely keep up. The same is true of insurance companies offering coverage.

Problems With The Product

According to Bob Parisi, cyber product leader for Marsh & McLenman Cos., an insurance brokerage firm, “Nothing else is growing as quickly as cyber.”

On the plus side, rising demand will allow insurance firms to raise prices 5% to 10% this coming year. On the negative side, cyber insurance is a young product and companies really have no idea how much exposure they have when they offer insurance coverage.

Cyber-attacks are not like natural disasters or automobile accidents for which insurers have decades of actuarial data to rely on. In addition, cyber-attacks do not have geographic boundaries making it impossible to spread the risk out, especially when companies have no idea who may be attacked next.


Insurers Are Jumping In

None-the-less the product sells and many companies are in the game. Companies that offer cyber insurance have payout limits of $10 million to $25 million for the most part. Larger companies can buy policies with higher limits, but they are costly.

Among companies offering cyber insurance are The Allstate Corp. (NYSE:ALLA), The Chubb Corp. (NYSE:CBC), CNA Financial Corp. (NYSE:CNAC), Hartford Financial Services Group, Inc. (NYSE:HIGB), Loews Corporation (NYSE:LC), Markel Corporation (NYSE:MKLC), Progressive Corporation (NYSE:PGRC) and The Travelers Companies, Inc. (NYSE:TRVC).

Others are expected to jump in as the sector settles and risk becomes more definable.

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