Page 20 - The Insurance Times May 2025

and storage. Backup systems provide a safeguard for recov- This calculation indicates that, on average, the expected
ery in case of data loss, while incident response plans allow financial impact of ransomware attacks on the business is
organizations to react swiftly and effectively to cyber Rs. 3,25,000.
threats, reducing potential disruptions.
2. Data Breach: For data breaches, insurers assess sce-
The Role of Cyber Liability Insurance in narios based on probabilities and costs:
70% chance of no breach, resulting in a cost of
Complementing Cybersecurity Rs. 0.
While robust cybersecurity protocols provide the first line
20% chance of a small-scale breach, costing Rs.
of defense against cyber risks, the increasingly sophisticated 10,00,000.
nature of these attacks underscores the need for additional
protective mechanisms. This is where cyber liability insur- 10% chance of a large-scale breach, costing Rs.
ance plays a pivotal role. As a strategic complement to 1,00,00,000.
cybersecurity, cyber liability insurance offers financial cov-
erage for managing the aftermath of cyber incidents. The EV for data breaches is: $$EV = (0.7 \times Rs. 0) + (0.2
\times Rs. 10,00,000) + (0.1 \times Rs. 1,00,00,000) = Rs.
This specialized insurance covers a range of costs, including 12,00,000$$
data recovery, legal proceedings, customer notifications,
business interruptions, and even reputational management. This calculation reflects the average expected cost of data
In recent years, ransomware incidents have accounted for breaches, helping insurers and organizations estimate finan-
nearly 40% of cyber insurance claims, highlighting the criti- cial exposure.
cal importance of this financial safeguard.
3. Premium Pricing: Combining EVs for ransomware at-
Expected Value (EV): A Foundational tacks and data breaches ((Rs. 3,25,000 + Rs. 12,00,000
= Rs. 15,25,000)), insurers add a margin (e.g., 20%) for
Concept in Risk Assessment profit and administrative costs: $$Premium = Rs.

The concept of Expected Value (EV) is central to understand- 15,25,000 + (0.2 \times Rs. 15,25,000) = Rs.
ing and managing cyber liability insurance. EV represents 18,30,000$$
the average financial impact of potential cyber incidents,
weighted by their likelihood of occurrence. Insurers rely on This ensures the insurer covers risk exposure while maintain-
EV calculations to assess risk exposure, set premiums, and ing profitability.
design policies tailored to the unique needs of insured orga-
nizations.

Case Studies in EV Applications

1. Ransomware Attack: Insurers calculate the EV for
ransomware attacks using probabilities and associated
costs:
80% chance of no attack, resulting in a cost of
Rs. 0.
15% chance of a minor attack, costing Rs. 5,00,000.
5% chance of a major attack, costing Rs.
50,00,000.

The EV for ransomware attacks is: $$EV = (0.8 \times Rs. 0)
+ (0.15 \times Rs. 5,00,000) + (0.05 \times Rs. 50,00,000) =
Rs. 3,25,000$$

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