The Evolving Relationship Between Risk Evaluation and Cost

Cyber insurance has transformed from a speciality product to an essential safeguard for organisations of all sizes. However, many businesses are surprised by premium variations and struggle to understand how insurers determine pricing. At the heart of this determination lies the cyber risk assessment, a comprehensive evaluation that significantly influences whether and how much coverage will be offered and at what cost.

The Current State of Cyber Insurance Pricing

The cyber insurance market in the UK hardened over the past few years for higher risk industries. A report by Marsh indicated that UK cyber insurance premiums increased by an average of 92% in 2022, with certain high-risk industries experiencing even steeper rises (Marsh, 2023). This dramatic shift reflects insurers' response to escalating cyber incidents and the growing sophistication of threat actors.

Aviva research reveals that one in five UK businesses have experienced a cyberattack, rising dramatically to 35% among large corporate businesses (Aviva, 2023). This increasing frequency of incidents has prompted insurers to reassess their pricing models and place greater emphasis on detailed risk evaluation.

How Insurers Evaluate Cyber Risk

Traditional approaches to cyber risk evaluation relied heavily on basic proposal forms or questionnaires and industry classification. However, as cyber threats have evolved, so too have assessment methodologies. Today's cyber risk assessments typically examine several key dimensions:

Technical Security Controls

Technical controls form the foundation of cyber defence and feature prominently in risk assessments. These include network security measures, endpoint protection, vulnerability management practices, multi-factor authentication and backup procedures. Insurers are particularly interested in controls that mitigate common attack vectors such as ransomware and business email compromise.

A UK Department for Digital, Culture, Media and Sport study found that organisations implementing basic technical controls experienced 80% fewer breaches than those without such measures (DCMS, 2023). This correlation between technical controls and breach likelihood directly influences premium calculations.

Governance and Human Factors

While technical controls are essential, insurers increasingly recognise that governance factors often determine breach outcomes. These include security policies, incident response planning, staff training, and executive oversight of cyber risk.

The National Cyber Security Centre's 2023 analysis of breach incidents revealed that human factors contributed to over 80% of significant cyber incidents in the UK (NCSC, 2023). Consequently, insurers now place substantial weight on governance maturity when calculating premiums.

Industry-Specific Risk Factors

Different industries face varying levels of cyber risk based on their data assets, regulatory requirements, and threat profiles. Financial services, healthcare, legal, retail, technology, and telecommunications sectors typically face higher premiums due to their attractive data assets and historical claim frequencies.

The concentration of valuable data within these sectors makes them particularly appealing targets. According to IBM's Cost of a Data Breach Report 2023, financial services organisations in the UK experienced an average breach cost of £4.9 million, compared to £3.8 million across all industries (IBM, 2023).

The Premium Impact of Comprehensive Risk Assessment

A detailed cyber risk assessment can significantly influence insurance premiums, often in surprising ways. Understanding these impacts helps businesses make strategic security investments.

Premium Reduction Potential

Organisations that undergo comprehensive, independent risk assessments often secure more favourable premium rates. This occurs for several reasons:

First, detailed assessments provide insurers with greater confidence in risk evaluation, reducing the uncertainty premium built into many cyber policies. When underwriters can accurately assess an organisation's security posture, they rely less on industry averages and more on organisation-specific data.

Second, thorough assessments often reveal security strengths that standard questionnaires fail to capture. Many organisations implement compensating controls or alternative security approaches that don't align with standard questions but effectively mitigate risk.

Third, assessments that validate control implementation rather than merely documenting their existence provide insurers with greater assurance. The difference between having a policy and effectively implementing it can significantly influence risk perception.

Beyond Premium Reduction: Additional Benefits

While premium impact often drives interest in comprehensive risk assessments, the benefits extend beyond insurance costs:

Broader Coverage Terms

Detailed risk assessments frequently enable organisations to secure broader coverage with fewer exclusions. As cyber policies have evolved, insurers have introduced increasingly restrictive terms for organisations without demonstrated security maturity.

A thorough assessment that addresses specific underwriter concerns can support negotiations for removing restrictive exclusions or reducing sublimits. This broader coverage often proves more valuable than premium reduction alone, particularly for high-risk industries where certain coverages (such as social engineering fraud or ransomware) may otherwise be heavily restricted.

Strategic Security Investment

Perhaps most importantly, comprehensive assessments provide organisations with actionable intelligence for security investment. By identifying specific control gaps influencing insurability, assessments help organisations prioritise security spending based on insurance impact rather than general best practices alone.

This alignment between security investment and insurance outcomes creates a virtuous cycle: targeted improvements reduce risk, which lowers premiums, freeing resources for further security enhancement.

The Future of Cyber Risk Assessment and Pricing

The relationship between cyber risk assessment and insurance pricing continues to evolve. Several emerging trends will likely influence this relationship in the coming years:

Continuous Monitoring vs. Point-in-Time Assessment

Insurers are increasingly exploring continuous monitoring approaches that evaluate security posture throughout the policy period rather than relying solely on point-in-time assessments. This shift could lead to dynamic pricing models where premiums adjust based on ongoing security performance.

Integration of Threat Intelligence

Assessment methodologies are beginning to incorporate threat intelligence specific to industries and regions, providing more contextual evaluation of control effectiveness. This approach enables more nuanced premium calculations based on an organisation's threat exposure rather than generic risk factors.

Greater Governance Focus

As insurers analyse claim data, the importance of governance factors becomes increasingly apparent. Future assessments will likely emphasise security culture, executive engagement, and organisational resilience more than focusing primarily on technical controls.

Conclusion: The Strategic Value of Comprehensive Cyber Risk Assessment

The influence of a cyber risk assessment on insurance premiums extends far beyond a simple checklist evaluation. Today's sophisticated assessment methodologies provide insurers with detailed risk intelligence directly impacting pricing models and coverage terms.

For organisations seeking to optimise their cyber insurance investment, comprehensive risk assessments offer multiple benefits: potential premium reduction, broader coverage terms, and strategic guidance for security investment. Organisations can make informed decisions that enhance security posture and insurance outcomes by understanding how assessments influence premiums.

As cyber threats evolve, the relationship between risk assessment and insurance pricing will undoubtedly grow more sophisticated. Organisations that embrace detailed evaluation now position themselves favourably for this changing landscape, potentially securing significant competitive advantages in security maturity and insurance costs.

Work with us:

Infoprotect specialises in helping insurance brokers place complex cyber risks through comprehensive, industry-specific risk assessments that address underwriters’ exact concerns about higher-risk sectors. 

Our industry specific expertise enables us to bridge the [Cyber] gap between security implementation and insurance outcomes, transforming how underwriters perceive higher risk industries, which will ultimately benefit both themselves and their customers. 

To find out more about how Infoprotect’s "Cyber Assess" can transform the buying journey, making cyber insurance not just accessible, but economical. 

Contact us for a confidential consultation to learn more about how Infoprotect can help your organisation or your clients.

Drop Brad Fraser a line on 01689 487055 or at brad.fraser@infoprotect.co.uk and connect on LinkedIn. BRAD FRASER, CEO @bradfrasergo-giver

WWW.INFOPROTECT.CO.UK

References:

Aviva. (2023). Cyber Security Awareness Report 2023. Aviva Insurance Limited.

Department for Digital, Culture, Media & Sport. (2023). Cyber Security Breaches Survey 2023. UK Government.

IBM Security. (2023). Cost of a Data Breach Report 2023. IBM Corporation.

Marsh. (2023). UK Cyber Insurance Market Trends Report. Marsh Ltd.

National Cyber Security Centre. (2023). The Cyber Threat to UK Business 2022-2023. NCSC.