With cyber threats rapidly growing, cyber risk insurance is emerging as a solution that can complement traditional cyber security and play a vital role in businesses and individual protection.

The insurance industry’s proactive commitment to offering cyber insurance products will be essential to increasing the sector’s potential for economic growth.

Cyber insurance is a form of insurance designed to protect a company against damages caused by cyber threats, including data breaches, hacks, DDoS, malware, and ransomware among others. Cyber insurance, which is also referred to as cyber security insurance, is a policy against natural calamities, business losses and accidents.

But in this space, the insurance is for damages from cyber risks. Thus, any company that uses or stores electronic data should consider getting a cyber insurance policy.

Analysts posit that cyber insurance comes as an opportunity to change the perception of the low acceptance for wide coverage, which works the same way businesses would purchase insurance against physical risks and natural disasters. It covers losses that enterprises may suffer as a result of a cyber-attack.

According to research conducted by PwC, a third of American-based firms have cyber insurance. Companies need as many resources as possible to deal with a data breach or cyber attack.

This is where cyber insurance is helpful, especially for smaller organisations. It provides support to mitigate the devastating financial impacts of a cyber security event.

To get an idea of how expensive a data breach is, here are two examples. According to NetDiligence’s 2015 Cyber Claims Study, the average cost of a lost record (like a credit card number or customer information) is a whopping $964.31 million. In 2019, the average cost of a single data breach ranged from $1.25 million to $8.19 million, depending on the country and the company’s industry.

While it helps organisations cope with cyber-related damages, cyber insurance cannot replace a system with tools, policies, and practices. It can’t prevent cybersecurity incidents from happening.

However, cyber insurance helps stabilise the company and adds strength to a cybersecurity strategy.  This not only provides a safety net for businesses in the digital age but also strengthens the overall resilience of Nigeria’s digital economy.

However, the insurance sector, which plays a fundamental role in mitigating financial risks associated with cyber incidents, is still catching up.  The NDPA 2023 builds upon the Nigeria Data Protection Regulation (NDPR) of 2019, emphasising the need for transparency, legitimate data processing and the protection of personal data.

The act mandates data controllers and processors to conduct periodic data protection audits and report breaches to the Nigeria Data Protection Commission (NDPC).

Although legislative strides, Nigeria’s insurance industry has yet to fully embrace cyber insurance. Cyber insurance products, which can provide financial security for businesses facing cyber threats, are not widely available. Some operators in the sector are beginning to recognise the potential in the market, suggesting partnerships with foreign underwriting firms like Chubb to offer cyber insurance solutions.

The National Insurance Commission (NAICOM) is also recognising the need for a structured approach to cyber insurance. Initiatives to develop frameworks for InsurTech and RegTech aim to facilitate the growth of technology-driven innovations in the insurance sector.

These steps are essential as cyberattacks become more frequent and sophisticated, threatening both individual and corporate data security.  One significant challenge hindering the widespread adoption of cyber insurance in Nigeria is the lack of awareness and understanding of cyber risks among businesses and individuals.

Many organisations do not wholly appreciate the value of cyber insurance and the protection it offers against financial losses from data breaches and other cyber incidents.

To address these challenges, the new leadership of the NAICOM needs to set this as a major achievement of their one year in office while the key stakeholders, including insurance operators and businesses, work together on awareness campaigns and educational initiatives.

These efforts should focus on the benefits of cyber insurance and the critical role it plays in a comprehensive cyber security strategy. Speaking on this development, in a paper delivered at the 8th Business Today yearly conference and Exhibition held in Lagos recently, the Deputy Director, Lagos Office of NAICOM, Ajibola Bankole, advised underwriting companies to adopt artificial intelligence (AI) as it gives better productivity and enhances profitability while ensuring quick service delivery and claims payment to insurance consumers.

Technology adoption, he said, is part of the 10-year roadmap of the insurance industry, stating that NAICOM, as a regulator, will continue to evolve policies that will engender the growth of the industry, increase penetration and contribute to the nation’s Gross Domestic Product (GDP) of the economy.

According to him, AI is key to the future of the insurance business in Nigeria. Also speaking, President of the Chartered Insurance Institute of Nigeria (CIIN), Edwin Igbiti, said the growing insurance industry would require that the countriy’s economy be derisked while seeking partnerships with the government and other stakeholders to deepen insurance penetration.

He submitted that AI will increase insurance premium growth, enhance service delivery, and ensure the insurance sector contributes more to the nation’s Gross Domestic Product (GDP).

Also speaking on the adoption of AI for better performance of the industry, at a forum held in Lagos recently, the Chief Executive Officer, Pension Fund Operators Association of Nigeria, Oguche Agudah, said: “The theme of AI and market penetration is very apt as to where we are as a country. For where we are as a nation, AI affects everyone generally whether we know it or not. So the challenge for us is how do we use this tool for insurance and pension penetration? How do we use it in everyday life?”

Agudah said AI can help in investment decisions, adding that as there are good sides of AI, there are also bad sides that must be taken care of.

“AI is transforming the insurance industry, especially in underwriting, customer support, advertising, claims, and fraud prevention,” he stated.