January 20, 2022

By: Jyoti Kanhere, Property and Casualty Insurance

The worldwide rollout of 5G will speed up the expansion of the Internet of Things in almost all industry sectors. Smart homes, smart vehicles, and a variety of smart devices will be part of our daily routine. Smart devices are not just smartphones or tablets but also include wearables, industrial sensors, medical devices, and sensors in vehicles, etc.

5G broadband speed is much faster than previous generations. It has the capacity to connect more than a million devices per square kilometer as compared to 4G networks, which can connect up to 100,000 devices per square kilometer. It is forecasted that the number of IoT devices will grow to 22 Bn by 2025. With the onset of the COVID-19 pandemic, remote working started as a temporary solution. That said, many firms will now adopt remote working or working in hybrid mode as a regular practice. To operate efficiently, faster and more reliable data speed is needed. With cloud-based data storage, 5G will be in demand for better data transmission and storage.

With 5G, multiple devices can connect and transfer data at high speed. This will help many industries. Many manufacturers have already started using real-time machine sensors, which detect and report potential problems on the production line. This will help prevent problems before they happen.

In the insurance sector, it will help in faster reporting and settling of claims and create a seamless user experience. For e.g., smart vehicles can notify drivers about the malfunctioning of any of their parts, thereby preventing a potential accident. It can also alert the insurer with important information that could speed up the claims settlement. In the healthcare industry, doctors will rely on wearable instruments to record and transmit data about vital medical parameters and signs. This instant transmission of data will help healthcare providers to efficaciously administer and deal with the patient.

5G will pave the way for hyper connectivity. However, it will also pose a huge number of cyber security threats. While the complete landscape of cyber threats is still unknown, recent cyber-attacks on healthcare organizations and financial institutes have caused huge damage. It is not possible to completely control data breaches. Cyber insurers hence must be prepared for 5G.

Cyber coverage marketplace will experience huge growth
As per the forecast through Standard and Poor’s Corp, cyber insurance premium, which is currently around USD 5 Bn annually, will increase 20 to 30 percent per year on average in the coming future. 5G will increase the cellular bandwidth. Increased connectivity will boost the IoT. But it will also expand the attack surface area. Currently, for many businesses, cyber insurance coverage is not mandatory. But considering the cyber-attack threat to businesses, very soon, it’ll be treated as “Must Have” coverage resulting in a boom in premiums.

Increase demand for Personal Cyber insurance coverage
Currently, some insurance carriers offer personal cyber insurance coverage as additional coverage for renters or homeowners insurance policies. Increased connectivity due to 5G will boost smart homes and the use of IoT devices. More people working from home, e-learning, and the continued rise in e-commerce-related activities will pose a threat to personal data getting compromised. Demand for Personal Cyber Insurance coverage will grow in the future, offering coverage for cyber extortion, cyberbullying, or data restoration.

Increase in regulations for making Cyber insurance mandatory
5G will boost the use of smart devices. But for many smart devices, device protection is poor, and malware distribution is easily scalable. There will be an increase in regulations for certain types of businesses, like financial institutions and healthcare organizations, to purchase mandatory cyber insurance.

The challenges of the cyber insurance market:

• Surge in Cyber risk exposure without enough underwriting controls

Underwriting Challenges:
Historical data about cyber losses are limited, and not all cyber incidents are reported. Collecting reliable cyber risk data continues to be the main challenge for insurers. Due to the increase in connectivity due to IoT, exposure to cyber-attacks is increasing. Underwriters cannot rely on available historical data as it is limited, and might be irrelevant to current cyber risks. In the future, more regulatory bodies will begin to enforce a higher standard of data collection. There will be procedures set up to regularly report cyber risk exposure.

Cyber risk insurers will start developing robust in-house teams for better cyber risk underwriting practices than relying on third-party firms for cyber risk analysis. Nowadays, underwriters demand more information before binding the business (for e.g., checking what measures companies are taking. This could include multi-factor authentication procedures or incident report plans).

• Cyber Criminals getting extra sophisticated:

Earlier cyber criminals mainly used to target identity theft. But now, they have moved towards hacking the entire system for ransom. In the future, hackers may use smarter “destructive bots.” As the capability of hackers is increasing exponentially, it becomes a challenge for underwriters to predict the frequency and severity of losses caused by such events.

• Cyber risk exposure not limited to geographic or commercial boundaries:

Cyber risk exposure is not limited to geographical or commercial boundaries. In the future, there could be a probable systemic event that challenges conventional underwriting categories of region, industry, or size. Geopolitical tensions might result in increased cyber-attacks, which may cause increased tension between different regions. Rival countries may get into cyber war targeting attacks on the economy, infrastructure, security, as well as sensitive personal data of citizens.

Concluding Notes:
As a result of the 5G rollout worldwide, the insurance industry will undergo a massive transformation. Hyperconnectivity and automation will improve the user experience. Cyber insurance is comparatively a new line of business for the insurance industry. However, considering the unknown threat to cyber security, cyber insurance will be the most sought-after insurance product. To be 5G ready, insurers need to focus on the risk management approach so that risk accumulation will be in tolerant limits. That said, underwriting cyber insurance policies is going to be challenging with limited historical data and unknown risks.

Reference:

https://www.forbes.com/sites/forbestechcouncil/2019/11/18/the-5g-iot-revolution-is-coming-heres-what-to-expect/?sh=1c326b5f6abf
https://www.propertycasualty360.com/2020/09/23/growth-in-5g-and-iot-presents-new-cyber-threats/
https://riskandinsurance.com/managing-iot-risk-in-the-5g-age/