A cyber-attack on Facebook’s (FB - Free Report) security system last week leaked personal information of more than 50 million account holders worldwide. Hackers exploited the social media network’s “view as” feature to gain access to user accounts. This is the biggest security breach in the social media giant’s 14-year history.
This is basically the result of not focusing on the potential issues, especially when the social media giant had faced security breach issues in the past. The approach so far has been to address the threats that have already taken place. The current incident demonstrates that cyber security breaches may occur despite millions invested in this area. Therefore, it requires companies like Facebook to take measures to recover from cyber attacks along with cyber security investments. And cyber insurance is the only way to help them recover from huge losses caused by the cyber-attacks.
Focus on Recovery From Cyber Attacks
Risk management has become a crucial strategy for businesses because of ever increasing corporate data breaches. Security breaches and hacks not only pose a threat to the technical aspects of a company but also inflict negative sentiment for the business and result in financial losses.
Despite the precautionary measures taken by businesses, security breaches take place as hackers come up with new ways to execute their plans.
Cyber insurance could reduce financial risks associated with performing business online. The segment is fast becoming a necessity, given the ever increasing cyber security threats. Therefore, it is advisable to keep some cyber insurance stocks in your watch list.
Before we move to the stocks, let’s take a look at why cyber insurance industry is set to thrive in the years ahead.
Cyber Crimes on the Rise
Apart from Facebook, Expedia’s (EXPE - Free Report) Orbitz and Under Armour’s (UAA - Free Report) MyFitnessPal app were also victims of cyber attacks earlier this year.
Hackers stole Orbitz customers’ data by accessing as many as 880k credit cards. The sensitive information theft included customer names, credit card information, date of birth, email addresses, phone numbers, physical addresses etc. The data theft via MyFitnessPal app compromised about 150 million user accounts, where names, passwords and email addresses were among the information stolen.
The news of security breach dragged shares of both Expedia and Under Armour down. This further reflects the relationship between brand and reputation, and how such attacks affect both.
Cyber Insurance Market to Grow
Cyber security insurance is a fast-evolving area for insurers. Since this is a new area, insurers don’t have much experience about it due to lack of past data.
According to a PwC report, the global economy incurs losses of more than $400 billion annually because of cyber crimes and the costs will continue to mount.
While cyber insurance does not protect businesses from lost reputation and weaker sales, it covers damages incurred in terms of digital assets such as software and data, additional operational costs and lost business opportunities. Cyber security insurance also covers loss through online thefts and cyber extortions, in case the hacker holds sensitive data for ransom.
PwC estimates that annual gross written premiums of cyber insurance will reach $7.5 billion by 2020. As more businesses recognize the importance of cyber insurance, the sector is poised for fast-paced growth.
Cyber Insurance Stocks in Focus
All the cyber insurance stocks mentioned below carry a Zacks Rank #3 (Hold).
Willis Towers Watson Public Limited Company (WLTW - Free Report) is an advisory, broking and solutions provider. The company covers reputational threats, forensic and PR expenses to contain a breach and credit monitoring costs. Willis Towers Watson also provides solutions to protect digital assets. The company’s earnings are expected to grow 12.5% for 2018. The Zacks Consensus Estimate for earnings has seen an upward revision of 0.2% for the current year over the past four weeks.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American International Group, Inc. (AIG - Free Report) is a provider of financial and insurance services. The company offers loss prevention tools and services that help businesses regain stability post a security breach. The company’s Zacks Consensus Estimate for earnings hasn’t changed for the current year over the past 30 days. American International’s earnings are expected to grow 90% for the current year.
CNA Financial Corporation (CNA - Free Report) provides cyber liability policy to companies. It covers losses incurred due to network damages, online thefts, business interruptions, defamation, copyright and publicity rights, notification and legal costs etc. The company’s Zacks Consensus Estimate for earnings hasn’t changed for the current year in the past month. CNA Financial’s earnings are expected to grow 23% for 2018.
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