In the past, risk management in insurance primarily revolved around physical risks—property damage, liability claims, and natural disasters. These risks, though severe, were often predictable and could be assessed using established models. Insurers had clear metrics for evaluating the probability of damage to a building or the likelihood of a liability claim. However, the digital age has introduced a new category of risks that are far more complex and less conventional.
Take cyberattacks, for example. In 2023 alone, according to Statista, cybercrime cost the global economy over US$ 8 trillion. As businesses rapidly digitise their operations, they have become more vulnerable to threats like hacking, ransomware and data breaches. Traditional risk management approaches, designed for physical risks, fall short when managing these evolving digital threats. A policy designed to cover fire damage, for instance, does little to address the far-reaching consequences of a data breach that could affect thousands of clients in an instant.
“The future belongs to those who understand the impact of digital transformation on risk.”
This article explores how insurers can shift their approach to risk management to blend traditional practices with digital solutions and stay ahead.
Traditional Risk Management
Traditional risk management strategies have been built around events that could be quantified and foreseen—physical risks like property damage or liability claims, as mentioned earlier in the article. These were concrete risks anchored in history and statistics. Insurers relied on established metrics and historical data to assess these risks while calculating the likelihood of an event and its potential financial impact. Such an approach worked well because these risks followed recognisable patterns and made them easier to manage.
A property insurer, for example, could evaluate the likelihood of fire damage based on building materials, location, and historical data. Liability risks, similarly, could be calculated based on industry standards and case law. These well-defined methods allowed insurers to offer reliable coverage for their clients and also manage their own exposure effectively.
However, while these traditional methods are reliable for physical risks, they are insufficient when faced with today’s digital challenges. A good example can be seen in the growing dependence on cloud services. A sudden outage in a major cloud provider can disrupt business operations worldwide to halt everything from e-commerce transactions to internal communications. Companies that rely on these pieces of digital infrastructure face operational paralysis, lost revenue and frustrated customers, all within moments of a service failure.
Unlike physical risks, the impact of a cloud service disruption does not follow predictable patterns. A single outage can cascade across industries and affect multiple sectors at once. It is not just the downtime itself that is costly; the ripple effect can lead to breaches of service-level agreements, lost client trust, and reputational damage that takes far longer to repair.
This complexity highlights the need for insurers to rethink how they approach risk management. The risks linked to digital infrastructure failures cannot be mitigated with the same traditional models that apply to physical events. Insurers now need tools that provide real-time monitoring, advanced data analytics, and proactive measures to address the fast-evolving nature of these digital threats.
Digital Risks on the Rise
The digital age has ushered in a new wave of risks, vastly different from the physical ones insurers have managed for years. Cyberattacks, ransomware, and system failures now pose some of the biggest threats to businesses worldwide. These digital risks move at a speed that older models struggle to keep up with and leave companies vulnerable to events that can unfold in seconds.
A prime example of the crippling and devastating nature of cyberattacks is seen in the case of Nigerian cryptocurrency trading company, Patricia. In the year 2023, Patricia lost US$ 2 million in Bitcoin to hackers. This breach exposed significant weaknesses in the platform’s defences and disrupted operations, leaving many customers with nearly irrecoverable losses.
An incident of this nature is an indicator of the growing sophistication of cybercriminals. It makes a good case for the need for insurers to develop newer risk management models.
How can insurers respond to these new digital threats?
In response to the surge in cyber threats, insurers must adopt new approaches to risk management that go beyond traditional methods. These approaches focus on predictive technologies, proactive risk mitigation and collaborative frameworks.
1. Predictive Analytics and AI: Insurers should embrace data-driven models using artificial intelligence (AI) and machine learning (ML) to forecast and analyse cyber risks. AI can help assess vulnerabilities across systems, identify potential threats before they escalate, and offer more tailored coverage solutions based on real-time data. These tools can continuously adapt to emerging threats so that they offer insurers a more dynamic approach to risk assessment.
2. Proactive Cybersecurity Solutions: Instead of simply responding to claims, insurers may offer proactive cybersecurity services to their clients. This includes providing businesses with access to cybersecurity resources, risk assessments, and protection measures that help prevent cyberattacks. For example, offering cyber risk audits or recommending security software can reduce the likelihood of breaches; proactive measures like these would help in reducing claims.
3. Bespoke Cyber Insurance Products: Traditional insurance models do not always address the specific needs of businesses dealing with digital risks. Insurers should create specialised cyber insurance policies that address varying levels of exposure to threats such as ransomware, data theft, or service disruption. These products should be adaptable and offer flexible coverage that evolve as cyber risks change.
4. Collaboration with Cybersecurity Experts: Insurers can partner with cybersecurity firms to enhance their ability to evaluate and mitigate risks. Collaborations with tech companies specialising in threat intelligence, digital forensics, and incident response can help insurers build stronger frameworks for assessing and managing cyber risks.
5. Real-Time Risk Monitoring: Implementing continuous monitoring tools allow insurers to keep track of a client’s cybersecurity posture in real-time. These tools offer immediate alerts on potential breaches, enable quick mitigation actions and provide more comprehensive coverage that adjusts to the constantly evolving risk environment.
Coronation Insurance Is Leading the Way
How is Coronation Insurance currently responding to these new threats?
1. Strong Cybersecurity Systems
As cyber threats become more common and sophisticated, Coronation Insurance has responded by building a strong and reliable defence system. The latest technology is used in its systems to protect client data and secure online transactions.
In addition, it regularly updates its systems to stay ahead of hackers and other online threats. This ensures that both Coronation’s operations and its clients’ personal information remain safe.
2. Educating Customers on Cyber Safety
Coronation Insurance understands that protecting its clients goes beyond just securing its own systems. That is why the company focuses on educating customers about online risks. Since a lot of customers may not fully understand the dangers they face in the digital space, Coronation Insurance runs awareness campaigns to bridge this gap.
Through practical guides, webinars, and newsletters, customers learn how to recognise and avoid cyber threats such as phishing scams and malware. These educational efforts help customers take the right precautions and make them an active part of the security process.
3. Looking Ahead: Cyber Insurance for Tomorrow
While insurance against cyber risks is still an emerging market in Nigeria, Coronation Insurance is already planning for the future. New insurance products are currently being developed specifically, designed to help individuals and businesses protect themselves from the increasing risks of the digital age.
These products will cover everything from data breaches to online business disruptions caused by cyber-attacks. Such products will offer protection and indemnity to those who may be affected by cyber incidents.
Coronation’s forward-thinking approach ensures that, as digital threats continue to evolve, its customers will always have the right coverage.
Closing Thoughts
The Need for a Hybrid Approach to Risk Management
As digital risks continue to grow, insurers can no longer rely solely on traditional risk management methods, which were designed for more conventional, physical risks. Modern cyber threats require a more dynamic, technology-driven approach that can respond in real time to cybersecurity threats.
This shift demands insurers to rethink their strategies entirely. Traditional models focus on assessing past events to predict future losses, but in the digital world, this backward-looking approach would prove to be insufficient. For instance, a ransomware attack can happen in minutes, locking a company out of its systems and demanding a ransom for access. In these cases, the fallout is swift and widespread. It affects not only a company’s finances but also its reputation, customer trust, and long-term operations.
To address this, insurers must adopt a hybrid approach that combines traditional practices with cutting-edge digital solutions. Real-time monitoring is one of the most critical tools insurers can use.
When insurers constantly track digital infrastructure and network activity, they can detect and respond to threats as they happen, thereby minimising damage. Advanced data analytics, powered by artificial intelligence (AI), may also help by analysing large volumes of data to identify unusual patterns or vulnerabilities before they are exploited.
In addition, insurers may employ blockchain technology to improve transaction security and reduce fraud risk. Blockchain’s decentralised nature makes it more difficult for cybercriminals to alter records and provides a more secure method of handling sensitive data.
These tools will allow insurers to remain agile and quickly adjust their risk assessments and policies to reflect the latest threats.
Coronation Insurance is committed to staying ahead of emerging risks with proactive solutions that safeguard your business in the digital age. Contact us today to learn more about our innovative risk management solutions.
To read more articles from Coronation Insurance, please visit https://coronation.ng/insights/
If you have any questions, please don’t hesitate to contact us at 02-012774500 | 02-012774566 | 02-012774577 or send an email to [email protected].
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