AIG’s big cyber gamble – will it pay off?

Firm will have a limited market initially for its new product, says expert

AIG’s big cyber gamble – will it pay off?


By Allie Sanchez

American International Group (AIG) has started offering personal cyber security insurance plans to individuals to address an emerging need in this segment of the market.

However, the insurer faces a number of challenges before the product takes hold in the US because cyber insurance for individuals is as yet uncharted territory for the insurance industry as a whole.

University of Alabama assistant professor of information systems Samuel C. Thompson said in a piece he wrote for Fortune magazine that insurers making a foray into personal cyber risk coverage face an as yet limited market. But while the pool of initial consumers is small, their online assets are diverse and involve huge amounts of data and dollars.

“(These present) serious challenges to traditional methods of measuring and pricing risks for insurance companies looking to enter this new market,” Thompson observed.

He also emphasized that “another problem for companies offering personal cybersecurity insurance is that consumers may be putting themselves at more risk than insurers can accurately anticipate.”

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Citing the concept of “privacy paradox,” Thompson explained that even as consumers prioritize the protection of their online privacy, their actual behaviour on social media platforms such as Facebook and Instagram contradict such priorities.

“For market researchers gauging probable policy issuance rates and monthly premiums, such gaps between intentions and behaviour can be confusing and perilous,” he goes on to say.

Furthermore, he pointed out that the current legal framework does not require consumers to get coverage for cyber risk, unlike homeowners’ insurance or auto insurance.

“As a discretionary expense to protect against a form of risk that can be very difficult to anticipate properly, this kind of insurance policy might be quickly cancelled if a family budget were pinched,” Thompson added.

Specifically, though, Thompson observed that AIG “appears to be taking the right approach to entering this budding market.”

“The question for the future is just how far down the income ladder cyber security insurance companies will need to go to find a viable, sustainable customer base,” he concluded.

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