EU IT security would benefit from a stronger cyberinsurance market, study says

European Network and Information Security Agency makes a case for a stronger cyberinsurance market in Europe

The European Union is lacking a well-developed cyberinsurance market that could push companies to better protect their information systems and data, the European Network and Information Security Agency (ENISA) said in a report published on Thursday.

Currently available data suggests that the E.U. insurance market for cybersecurity risks lags behind the U.S. For example, in the U.K. there are only a handful of insurance companies that offer cyberinsurance products, compared to between 30 and 40 in the U.S., ENISA said.

The agency argues that such specialized insurance products could bring benefits to the overall state of IT security for both businesses and individuals.

For example, insurance providers could help strengthen existing IT security standards and offer reduced insurance premiums to companies that implement them.

"If a company can show that it has adopted a set of practices generally considered by the community to be worthwhile things to do with respect to cybersecurity, then this will reduce information asymmetries and better demonstrate to the market that the firm takes security seriously," ENISA said.

Insurance premium reduction could also be used as a means to encourage the use of IT security products that have been certified and tested by the industry, as opposed to products of relative effectiveness.

"Finally, the [cyberinsurance] market can contribute to overall social welfare by helping to keep the costs for poor cybersecurity within the private sector and not shifting costs and liability back onto the public sector," ENISA said.

There are several measures that European policy makers could take in order to help kick-start the cyberinsurance market, ENISA said.

These include making it easier for victims of data breaches to launch private and class-action lawsuits, making cyberinsurance mandatory for firms that bid on public contracts and developing methods of collecting data about the costs of IT breaches from a wide range of companies at the pan-European level.

"In the narrow instance of the context of loss of personal data, it would appear that opportunities for victims to instigate collective action are limited as this would interfere with the interpretation of personal data as a fundamental human right rather than a property right that can be traded," the agency said. The authorities competent to undertake collective actions in E.U. member states do not currently include data protection agencies, ENISA said.

One of the reasons why the cyberinsurance market has failed to take off is the lack of robust data about the costs and implications of cyberattacks.

Nonprofit organizations, commercial companies and government agencies are releasing an increasing number of reports and surveys on this topic. However, decision makers are uncertain about which of them to believe and whether some reports should be relied upon more than others, ENISA said.

The same uncertainty can be observed in regard to establishing what type of cybersecurity risks insurance companies should insure against and the actual extent of those risks.

"An example of recent relevant regulatory intervention from across the Atlantic can be seen in the United States where the Securities and Exchange Commission (SEC) in 2011 required that all regulated firms should disclose the risk of cyberincidents," ENISA said. "Expectations in the market are that this will trigger many firms buying cyberinsurance in order to communicate to the market information that they are properly managing these risks."

The demand for cyberinsurance policies is also dependent on the ability of companies to measure the value of their information. The European Commission could work with insurance underwriters, as well as privacy and information security advisers, to establish common frameworks for this purpose, ENISA said.

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Lucian Constantin

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