Alta Signa: CFO deepfakes highlight urgency for cyber risk mitigation

Earlier this year, an employee from the Hong Kong office of a multinational organisation received instructions via video call to transfer $25m. Believed to be coming directly from the company’s chief financial officer(CFO), the employee transferred the funds as instructed.

The video, however, had not been made by the CFO. Scammers had in fact made the call using deepfake technology and artificial intelligence (AI) to mimic both the CFO’s voice and even their behaviour.

And this isn’t an isolated example. Similar incidents have occurred globally, indicating a growing threat from AI-enabled deepfakes. As one would expect, insurers are paying close attention to the rise of deepfake scams and the significant financial losses for both individuals and businesses they have the potential to cause.

The emergence of deepfake technology necessitates a reassessment of wordings and coverage to address the evolving risks, and is also prompting insurers to look closely at claims patterns and the potential for deepfake technology to be applied in claims fraud evidence.

This is just one example of the myriad of constantly evolving threats that beset the global re/insurance landscape. In Europe, ransomware also remains a predominant menace, together with supply chain attacks and business email compromise (BEC) scams which also loom large, highlighting the multifaceted nature of cyber risk.

European SME financial businesses are prime targets for cyber criminals. The burgeoning frequency and complexity of cyber threats have precipitated what some see as the start of a surge in cyber insurance claims. Ransomware incidents account for a significant proportion of claims involving recovery expense losses.

However, exclusions within insurance packages have led to non-payouts or partial payouts in a sizable portion of data breach and first-party claims. Moreover, the proliferation of BEC scams underscores the imperative for robust risk mitigation measures and comprehensive coverage.

Since the start of the year, capacity dynamics in the European cyber insurance market have witnessed a notable expansion, driven by the influx of new carriers seeking to capitalise on growing demand. This influx, coupled with a soft market, has exerted downward pressure on pricing, compelling carriers to increase capacity to cover premium losses.

Consequently, renewal dynamics have been characterised by brokers striving to maintain existing relationships with incumbent carriers to leverage cost-saving opportunities for clients. These conditions raise the risk of a race to the bottom on pricing – a dangerous situation for any risk, but particularly given the systemic potential of cyber risk. However, the allure of discounts offered by new entrants has introduced complexity into the renewal process, prompting a delicate balancing act between loyalty and financial prudence.

Against the backdrop of a soft market, insurers have been prompted to adjust policy wordings to mitigate risks and navigate evolving threat landscapes. Modifications such as war exclusions and contingent business interruption coverage for non-IT sectors reflect a concerted effort to enhance policy clarity and responsiveness to emerging cyber risks. These adjustments underscore the imperative for insurers to remain agile and proactive in adapting to the evolving cyber threat landscape.

The reverberations of market shifts in the insurance sector are mirrored in the reinsurance market. Premium reductions and extensions in policy wordings observed in the primary market are reflected by reinsurers tightening their wordings, necessitating a recalibration of risk assessment and pricing strategies. As reinsurers contend with heightened demand and evolving risk profiles, it is more critical than ever for insurers to maintain constructive and ongoing dialogue with their reinsurance partner, to ensure collaboration and innovation can continue to meet the evolving needs of policyholders.

Staying ahead of the curve by embracing agility, foresight, and ensuring their operational resilience are pivotal for Europe’s SME financial lines businesses in securing effective coverage against the risks they face. Insurers and reinsurers are laser-focused on providing coverage for those that are proactive about the risks they face – and that take concrete steps to address and mitigate them.

Knowledge transfer and education play pivotal roles in fostering a more secure and resilient cyber insurance ecosystem in Europe. As cyber threats evolve and become more sophisticated, it’s imperative that both insurers and reinsurers prioritise the dissemination of technical risk mitigation expertise to policyholders. By offering educational resources and proactive guidance, insurers can empower businesses to better understand cyber risks and implement effective measures to mitigate them.

This not only enhances the overall cyber resilience of businesses but also contributes to the sustainability of the insurance industry by reducing the frequency and severity of successful cyber incidents. Through collaboration and expert technical knowledge sharing, insurers and reinsurers can work together with policyholders to navigate the complexities of the cyber threat landscape and ensure a more robust insurance market for the future.

By Mauro Marongiu, technical head of cyber underwriting, Alta Signa.