Crowdstrike IT outage could prompt ‘greater demand for cyber cover’

There could be “greater demand for cyber cover” as a result of the July 2024 global IT outage caused by a reported faulty software update from American cyber security firm Crowdstrike, according to Bharat Raj, head of London markets at consultancy Broadstone.

He said: “This latest outage is likely to prompt greater demand for cyber cover, especially for losses stemming from non-malicious causes, which are underserviced in the current market.”

Raj was sharing his view on the cyber market in conjunction with the publication of Broadstone’s latest Insurance Risk Monitor update on 16 September 2024, which called for enhanced risk modelling after the Crowdstrike incident.

Broadstone commented that “the cyber insurance market has developed relatively quickly”.

It continued: ”As a consequence of its rapid growth, modelling capabilities for cyber risks have not yet reached the level of sophistication found in other insurance classes of business with comparable premium volumes.”

The firm added that the Crowdstrike incident challenged “conventional thinking” in the cyber insurance market because the majority of previous insured cyber incidents to date had been caused by malicious actors rather that system malfunctions.

Raj agreed: “The Crowdstrike event and other recent cyber events – including MoveIT, Change Healthcare, CDK Global and Snowflake – reinforce the systemic risks in the digital supply chain.

”There is a high level of interconnectedness within these systems that can be brought to a standstill abruptly and on a large scale.”

Broadstone further acknowledged that cyber risks can be “further exacerbated” due to the increasing use of generative artificial intelligence (AI) in coding, for example.

Risk mitigation

For insurers looking to combat this particular risk, ”the key to ensuring strong underwriting performance will be in enhancing data collection and improving the ability to monitor and manage risk aggregations in real-time”, Raj noted.

Broadstone recommended that underwriters must use detailed catalogues around technology to keep abreast of potential cyber risks.

It explained: ”[An] extremely detailed catalogue must be developed for the IT landscape covering hardware, software, connected devices, wearables and key infrastructure that IT systems rely on, such as cables and satellites.

”An added challenge for the cyber insurance market is that the technological landscape is constantly evolving. Therefore, it is vital for such a catalogue to be dynamic and up to date.

”For underwriters, a key action they can take in the short term is to require policyholders to provide more detailed catalogues of the systems and components they employ.

”Underwriters should also aim to place stricter requirements on this information being kept up to date. Collecting this information alone is fairly helpful for portfolio analyses and can reveal concentrations of risk.”

The firm concluded that “it remains challenging to analyse widespread outages and [these] risks are constantly evolving”.