The cyber-risk insurance market isexperiencing rapid development, with the rise of global grosswritten premiums from US$850 million in 2012 to an estimated $2.5billion in 2014, revealed a new report from Timetric. Agrowing number of cyber attacks, and the increasing reliance ofbusinesses on technology for operational capabilities and storingdata, are responsible for the traction the cyber-risk insurancemarket is gaining. But insurance firms are responding slowly tothis rising demand, and a number of imperfections in the market areleading to a suboptimal outcome.

“Total global losses from cyber crime stood at $445 billion asof June 2014. With governments becoming increasingly involvedin cyber threats, the prospect of compulsory cyber-risk insurancecould become a reality. It would have a transformative impact uponthe market and could create a strong source of future revenues fornon-life insurers,” comments Jay Patel, insurance analyst atTimetric.

Over the last few years, insurers have experienced rapid growthin the demand for cyber-risk insurance. Interest in cyber insurancehas grown primarily among businesses that hold sensitive consumerinformation such as telecommunications companies, financialservices organizations, and retailers.

A substantial growth in the demand for cyber insurance inEurope is expected, subsequent to the new General Data Protection(GDPR) law, which is to be finalized by year-end. The GDPR isexpected to come into force by 2017 in all the EU member states,making data breach notification compulsory. It is likely that thiswill give more power to the regulators, along with an increase inpenalties—up to $1.3 million or 2 percent of a company's globalannual turnover.

In 2014, Europe's cyber insurance market's was estimated to beworth US$150 million in gross written premiums, while the U.S. had$2 billion in gross written premiums, approximately 90 percent ofthe global premiums in the cyber insurance market.

“The reason why the European market is less developed than theU.S. is because of a small number cyber insurance products that areoffered by insurers and less business awareness of the cyber riskproblem. However, insurers are making forays to serve the Europeanmarkets,” says Patel.