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  • Robert Stines

Internet of Things and Cyber Insurance

In my last blog, Attorneys will Impact the Internet of Things, I discussed that the IoT creates a significant risk to privacy and cybersecurity. Like so many other industries -- automotive, pharmaceutical, healthcare, environmental -- it's not until attorneys start suing developers and manufacturers, and juries render multi-million dollar verdicts against corporations, that security and safety become a priority in the IoT.

Already our cars, watches, fridges, thermostats, door locks, speakers, etc are Internet devices. In a hyper-connected world, cyber events and data breaches are a real threat that have the potential to cause financial and physical harm. Where there are anticipated risks, economic losses and the potential for physical harm, there is usually a market for insurance.

It's not surprising that because of the IoT, Munich Reinsurance predicts that the worldwide cyber insurance market will more than double to as much as $9 billion by 2020.

When thinking about cybersecurity, the Equifax and Yahoo breaches garner the media's attention, but the biggest economic losses are caused by ransomware and malware such as WannaCry and NotPetya. These types of attacks lead to business interruptions and loss of data that can bankrupt smaller companies that do not have the proper type of insurance.

"Cyber risks are one of the biggest threats to the networked economy," Torsten Jeworrek, a member of Munich Re's board of management, said in a statement. The company is making highly targeted investments in know-how and development of networks to improve its services and insurance policies, he said.

Some insurance professionals see the IoT as a major disruptor to the insurance industry. For example, one of the promises for autonomous interconnected vehicles is that they will completely eradicate human error that cause motor vehicle accidents. When the risk of accidents is reduced, so will the premium for auto insurance. Another example is home insurance. Other than being a mortgage requirement, how much insurance does one need when their house is monitored 24 hours a day, every day, resulting in a lower probability for burglaries, fires or floods.

Of course, the IoT cannot prevent "Acts of God" (hurricanes, earthquakes, tornadoes, etc.). Some view the IoT as simply shifting the risk. Yes, autonomous vehicles should prevent accidents caused by human error, but they are now susceptible to computer glitches that may cause accidents. Smart homes are monitored 24/7, but they are now targets for ransomware?

The insurance industry is already researching how the IoT will impact our world and their business model. According to Lloyd's (the largest and oldest insurance market in the world),

IoT’s exponential growth presents key opportunities for the insurance industry – new and specialized insurance products, new ways to engage with customers, and enhanced risk management practices.

Carriers trying to gain an advantage are making significant investments in technology and are re-tooling their business processes and the skills to transform their operations.

In the near future, businesses and consumers may spend more on cyber insurance than on traditional, "low tech" insurance.

Florida Cyber Lawyer - Robert Stines


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