Demand for Cyber-Attack Insurance Jumps 33% -Report

   By Erik Holm 
 

The number of U.S. companies buying insurance to protect against a cyber attacks and data breaches jumped 33% last year at insurance broker Marsh Inc., making cyber risk one of the fastest growing lines of coverage, the company said Thursday.

Businesses that purchase the coverage are buying more of it, with the average company getting $16.8 million in cyber insurance last year, an increase of nearly 20% from 2011, according to a new report from the company.

With revelations of cyber attacks dominating the news in recent months, the Marsh report is the latest sign that corporate America is growing more concerned about the potential damages that can arise when companies lose control of customer information.

The U.S. Department of Energy, Twitter Inc. and several news outlets, including The Wall Street Journal, have recently revealed attacks by hackers. News Corp. (NWS, NWSA) owns Dow Jones & Co., publisher of this newswire, and The Wall Street Journal.

This week, J.P. Morgan Chase & Co. (JPM) came under a so-called "denial of service" attack, the latest bank to suffer from an assault that increases the volume of website hits so that actual customers can't access the site.

The Iranian government was thought to be behind an earlier series of attacks against U.S. banks in recent months. Iran has denied any involvement with the attacks.

Meantime, Army Gen. Keith Alexander, head of the Defense Department's U.S. Cyber Command, this week told a Senate panel he was concerned cyber attacks would grow in the year ahead.

Insurance companies and brokers have been trying to sell add-ons to standard commercial insurance policies to cover such risks for more than a decade, but have only gained traction with the product in recent years.

"From the guys managing the help desk to the board, they're now all aware of the risks," said Bob Parisi, network-security and privacy-practice leader for Marsh, a unit of Marsh & McLennan Cos. (MMC). "It's one of the fastest growing lines of insurance out there."

A rise in concern by regulators has also helped fuel demand for the product. President Barack Obama last month signed an executive order aimed at bolstering computer-network protections and noted the "rapidly growing threat from cyberattacks" in his State of the Union address.

The Marsh report mirrors findings from a survey conducted by American International Group Inc. (AIG) that found more corporate executives are concerned about cyberattacks and data breaches than property damage and investment risk. The poll found 85% of the survey participants were very or somewhat concerned with cyber risks, compared with 80% who were concerned with property damage and 76% concerned about securities and investment risks.

Mr. Parisi estimated that insurers collected about $350 million to $450 million in premiums on cyber-insurance policies last year. He said roughly 20% of U.S. businesses buy the coverage, indicating room for substantial growth.

According to the Marsh report, the services industry, which includes legal, accounting, and personal-services firms, had a 76% increase in the number of clients purchasing cyber insurance, the largest of any sector last year. It was followed closely by the education sector, which saw a 72% rise.

Write to Erik Holm at [e-mail]

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