Cybersecurity, Emerging Issues in Security

The Changing Threat Landscape of Cyber Risk

Our latest Allianz risk report looks at today’s cyber risk landscape and the emerging threats posed by the growing reliance on cloud services, an evolving third-party liability landscape that means higher compensation and penalties, as well as the impact of a shortage of cybersecurity professionals.

We found that ransomware and phishing scams are as active as ever. Most companies will not be able to evade a cyber threat. However, it is clear that organizations with good cyber maturity are better equipped to deal with incidents. Even when they are attacked, losses are typically less severe due to established identification and response mechanisms.

Around the world, the frequency of ransomware attacks remains high, as do related claims costs. There were a record 623 million attacks in 2021, double that of 2020. Although frequency reduced by 23% globally during the first half of 2022, the year-to-date total still exceeds that of the full years of 2017, 2018, and 2019, while Europe saw attacks surge over this period. Ransomware is forecast to cause $30 billion in damages to organizations globally by 2023.

From an Allianz Global Corporate & Specialty (AGCS) perspective, the value of ransomware claims the company was involved in together with other insurers, accounted for well over 50% of all cyber claims costs during 2020 and 2021.

Double and Triple Extortion Now the Norm

The cost of ransomware attacks has increased as criminals have targeted larger companies, critical infrastructure and supply chains. Double and triple extortion attacks are now the norm—besides the encryption of systems, sensitive data is increasingly stolen and used as a leverage for extortion demands to business partners, suppliers, or customers. Ransomware severity is likely to remain a key threat for businesses, fueled by the growing sophistication of gangs and rising inflation, which is reflected in the increased cost of IT and cybersecurity specialists.

Sophisticated Scams

Business email compromise (BEC) attacks continue to rise, facilitated by growing digitalization and availability of data, the shift to remote working and, increasingly, “deep fake” technology and virtual conferencing. BEC scams totaled $43 billion globally from 2016 to 2021, according to the FBI, with a 65% spike in scams between July 2019 and December 2021 alone. Attacks are becoming more sophisticated and targeted with criminals now using virtual meeting platforms to trick employees to transfer funds or share sensitive information. Increasingly, these attacks are enabled by artificial intelligence enabling “deep fake” audio or videos that mimic senior executives.

Geopolitical Threats

The war in Ukraine and wider geopolitical tensions are a major factor reshaping the cyber threat landscape as it increases the risk of espionage, sabotage, and destructive cyberattacks against companies with ties to Russia and Ukraine, as well as allies and those in neighboring countries. State-sponsored cyber acts could potentially target critical infrastructure, supply chains, or corporations.

Supply Chain Vulnerability

Supply chain attacks—whether on critical infrastructure such as the Colonial Pipeline or on cloud services—have emerged as a significant risk. Increasingly, ransomware gangs use the threat of disruption to pressure firms into paying ransoms, with manufacturing companies particularly vulnerable.

Cloud Outsourcing

Companies continue to shift their services and data storage on to the cloud, despite growing concerns around security and risk aggregation. By relying on a small number of providers for cloud services or cybersecurity, society is creating large concentrations around a few single points of failure. It is a common misconception that the outsourcing or cloud vendor will assume full responsibility in the event of an incident.

Talent Shortage

A shortage of professionals is hindering efforts to improve cybersecurity. While there is growing awareness among boards, the number of unfilled cybersecurity jobs worldwide has grown 350% over the past eight years to 3.5 million, estimates show, meaning many companies struggle to hire, impacting their ability to improve their cybersecurity posture.

ESG Concerns

Today, companies’ cybersecurity resilience is scrutinized by far more stakeholder groups than in the past. Increasingly, cybersecurity considerations are incorporated into the ESG risk-analysis frameworks of data providers, who look into companies’ practices to evaluate their preparedness for cyber crime. Making sure a company’s cyber processes and policies are understood at the board level and that risk monitoring processes are in place has never been more important.

Cyber Risk Management Partnership

In response to a more complex risk environment and increasing cyber claims activity, the insurance industry is more diligently assessing companies’ cyber risk profiles in a bid to incentivize companies to improve their security and risk management controls.

The good news is that insurers are now having very different conversations on the quality of cyber risk with their insureds than a few years ago. Better insight helps insurers provide more value and offer useful information to customers, such as which controls are most effective or where to further improve risk management and response approaches. The net result should be fewer—or less significant—cyber events for companies and fewer claims for insurers.

Scott Sayce is Global Head of Cyber at corporate insurance carrier Allianz Global Corporate & Specialty and Group Head of the Cyber Centre of Competence. To read the full report, please visit here.