Losing cyber risk insurance can lead to devastating financial and operational consequences, as demonstrated by the cyberattack on Jaguar Land Rover (JLR) earlier this year. In short, not having cyber risk insurance means a company must bear the full financial burden of a cyberattack, including recovery costs, lost revenue, emergency financing, and supply chain disruption, all of which can be massive and potentially require government intervention to mitigate economic fallout.
Consequences of Not Having Cyber Risk Insurance
The case of JLR illustrates the severe impact a major cyberattack can have on an uninsured or underinsured large corporation:
- Massive Direct Financial Cost: JLR was forced to shut down its production lines for over four weeks, costing the company £50 million a week. The total direct loss from the shutdown was approximately £200 million.
- Need for Emergency Financing: The company had to secure a substantial £2 billion funding facility from its bankers to stay afloat, a measure that would not have been cheap.
- Government Intervention: To avoid potential economic fallout and protect the automotive supply chain the UK government had to step in with a £1.5 billion credit guarantee.
- Supply Chain Disruption: The attack initially forced JLR to withhold payments from suppliers. This is critical, as the automotive sector relies on the just-in-time model, making it highly vulnerable to payment or operational freezes.
The Growing and Costly Threat
The JLR case, while extreme, is part of a larger, growing trend of sophisticated cybercrime affecting major organizations globally:
- Industry-Wide Impact: Recent victims span multiple sectors, including retail (Marks & Spencer, Co-op), airports (Heathrow Airport), and the maritime industries (Maersk, MSC, CMA CGM, DP World, and Clarksons).
- Average Cost of an Incident: A report by IBM, which examined data breaches globally, estimated the average cost of a cyber incident at $4.4 million.
In the face of this growing sophistication, cyber risk insurance serves as a critical financial tool to mitigate the worst impacts for companies across all sectors.
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Source: Lloyd’s List
