June | 2020
Cyber Insurance for Small and Medium Enterprises is the fastest growing market segment in the Insurance industry1 globally. Yet less than 20% of the Small and Medium Enterprises (SMEs) have a Cyber policy today2. This proportion is extremely low given that 43% of cyber-attacks are targeted towards SMEs and more than 60% SMEs go out of business post an attack3.
To find out probable reasons, one can get into the shoes of a typical SME owner, say Oliver, 45, from Queensland (Australia). Oliver, who runs a jewelry and accessories business, is excited about online operations and is growing his digital operations. However, Oliver is worried about Cyber Security. Unlike a large business, Oliver has limited resources and knowledge in this field. A local IT vendor and a friend offers help with purchasing some security software. But Oliver is not sure if it is adequate to protect his growing business against ever-evolving online threats.
Purchasing a Cyber Insurance policy is also an option. But Oliver understands little about insurance (indemnity) policies. It’s confusing, full with complex jargons and lacks transparency on how insurers calculate payable losses against claims.
Oliver could be just one representative amongst 2.3 Million Australian SMEs4 who seek complete protection, both through cyber security and insurance. However, the current market views Cyber Insurance and Protection services as discrete offers. This is a major gap and represents a great opportunity for Insurers.
Bridging the gap with Cyber Security Ecosystem
An Insurer led Cyber Security Ecosystem (CSE) ties Cyber Insurance and Cyber Protection together to build a scalable, highly adaptive and robust digital service delivery model as depicted in Figure 1.
Figure 1: Cyber Security Ecosystem: Broad layout, services and key players
The CSE ties Security and Insurance services from multiple service providers together and offers a tailor-made solution based on threat vectors and business needs of various SME personas. Insurers are naturally positioned to develop innovative and holistic propositions that protect their customers and help in increasing cyber resilience. Insurer’s role is more inclusive and evolves from pure risk indemnification to holistic protection.
Insurer-led CSE is a great strategic investment that helps them to differentiate, gain competitive advantage and grow their business, while at the same time increase connection and engagement with their customers.
Further, CSE offers a win-win model for each of the stakeholders as depicted in Table.
| Stakeholder | Considerations | Key Advantages |
|---|---|---|
| SME / End Customer |
|
|
| Insurer |
|
|
| OEMs |
|
Table 1: Cyber Security Ecosystem advantage
The success strategy with Cyber Security Ecosystem
As mentioned earlier, SMEs have distinct risk profiles and limited resources compared to large corporates. With these unique characteristics, CSEs are well-positioned to be an acceptable and the preferred mode of risk mitigation for SMEs.
Further, CSE is helpful in creating a virtuous cycle for clients and insurers by successfully collaborating risk mitigation with evolving technologies. As insurance protection and monitoring is in-built, it helps to reduce the possibility of attacks and enhance trust between the client and the insurer.
Innovation, cross industry collaboration and efficient delivery model are three crucial success factors that will shape the end customer experience and ultimately, success of the CSE. Insurance companies need to invest in building these elements as a part of their strategy.
Two other elements that are crucial in the success of a CSE are Price Points and Go to Market plan. Pricing options need to be evolved with a considerable flexibility for the SME customers. The pricing models need to be built basis the bundled services, SME composition, industry types and number of devices covered.
Go to Market strategy will largely depend on the ability of the insurers to bring up new distribution partners i.e. resellers, IT vendors, service integrators etc. who influence the decision making by SMEs. Crafting a value proposition for each of these partners will largely determine the success of the initiative.
Towards cyber resilience
Thought leadership and execution capabilities of insurers in binding the above elements together will certainly help them gain cutting-edge market leadership in one of the biggest growth opportunities in global insurance market. Post COVID-19 pandemic, businesses will use technology at a much larger scale. Cyber risks will continue to emerge and SMEs will scout for better ways to mitigate them. The time is just right for insurers to start and build a Cyber Security Ecosystem to reap maximum benefits.
References
4https://www.asbfeo.gov.au/sites/default/files/documents/ASBFEO-small-business-counts2019.pdf
5https://www.gminsights.com/industry-analysis/cybersecurity-market Market estimate 2018 by Global Market Insights, Inc. & Zion Market Estimates
https://www.zionmarketresearch.com/news/cyber-insurance-market Zion Market Estimates
Amol Pramod Ubale
Digital Sales Head for Insurance - APAC, Wipro
He has 17 years of experience in building Digital Insurance channels for Group, Employee Benefits and Retail. Amol is currently focusing on building Cyber Insurance proposition for SME and retail customers for large P&C insurers.
The opportunity is ripe for a new player to enter the market with a differentiated offering that is driven from a smartphone app and thereby gain a clear edge against the competition.
"To succeed, the insurance industry will need to deliver far more value to policy holders in future than it is doing today and it will need to embrace telematics and predictive analysis from big data if it is to compete with competition from vehicle manufacturers, telecom players and other sectors. "
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