IRDAI panel not in favour of standardisation of cyber insurance

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January 20, 2021 10:07 PM

Standardisation may not be able address all the emerging risks and is likely to limit innovation, said the report on which IRDAI has invited comments by February 9.

IRDAICyber insurance policy is a risk transfer mechanism for cyber risks.          

An IRDAI working group has opined against standardisation of cyber liability insurance as it might impede innovation and hinder adaptation to evolving industry needs.

In October last year, the Insurance Regulatory and Development Authority of India (IRDAI) had set up the working group to study cyber liability insurance and suggest among things, possibility of developing standard coverages, exclusions and optional extensions for various categories.

Cyber insurance policy is a risk transfer mechanism for cyber risks.

The panel, as per its report published by the regulator, examined various aspects relating to cyber insurance in India, including coverage issues, sector wise exposures, underwriting/ pricing methodology, and claims response and management to come to an informed conclusion on standardisation.

“The Working Group believes that early standardisation of cyber insurance in India, might impede innovation and hinder adaptation to evolving industry needs. It may lead to price-based competition instead of developing competencies for agility to design new products suitable to new environments,” the report said.

It further said that while standardisation of cyber insurance policy seems to be a very good approach, at present it faces many challenges. Cyber insurance is a response mechanism to cyber risks which are dynamic and evolving.

Standardisation may not be able address all the emerging risks and is likely to limit innovation, said the report on which IRDAI has invited comments by February 9.

“Cyber insurance, at present, is much dependent upon support of reinsurers who instead of a standardised wording may prefer to use coverage and exclusions as per the latest developments in the market,” said the report, and added that cyber insurance, being a relatively new product, calls for flexibility for gaining traction.

The report also noted that cyber insurance policies, currently available, address the requirements of individuals reasonably well.

But, there are some areas in the product features and processes which need improvement.

It has recommended that there should be flexibility with regards to insistence of an FIR at the time of claims. It also suggested there should be clarity in exclusion language relating to compliance with reasonable practices.

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