The European Union is lacking a well-developed cyber-insurance market that could push companies to better protect their information systems and data, according to a report published by the European Network and Information Security Agency (ENISA).
Currently available data suggests that the EU insurance market for cyber-security risks lags behind the US For example, there are only a handful of insurance companies here that offer cyber-insurance products, compared to between 30 and 40 in the US, ENISA said.
The agency argues that such specialised 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 cyber-security, 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 cyber-insurance market can contribute to overall social welfare by helping to keep the costs for poor cyber-security within the private sector and not shifting costs and liability back on to the public sector," ENISA said.
There are several measures that European policy makers could take in order to help kick-start the cyber-insurance market, ENISA said.
These include making it easier for victims of data breaches to launch private and class-action lawsuits, making cyber-insurance 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 EU member states do not currently include data protection agencies, ENISA said.
One of the reasons why the cyber-insurance market has failed to take off is the lack of robust data about the costs and implications of cyber-attacks.
Non-profit organisations, 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 cyber-security 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 cyber-incidents," ENISA said. "Expectations in the market are that this will trigger many firms buying cyber-insurance in order to communicate to the market information that they are properly managing these risks."
The demand for cyber-insurance 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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