(Bloomberg View) — Companies are finding a way to minimize the repercussions when their digital security is violated. Unfortunately, they're turning to the same safeguards that protect the guitar-strumming hands of Keith Richards, the goal-scoring limbs of David Beckham and the most remarkable assets of Dolly Parton, rather than coming clean about the perils of data breaches or pooling information so that threats can be properly quantified and addressed. In short, they're focusing on the consequences of cybercrime, not the causes, by purchasing liability and errors-and-omissions insurance.
It seems buying insurance against the financial consequences of cyberterrorism from Lloyds of London, the world's oldest insurance market, is easier and more palatable than tackling the underlying problem. High-profile attacks, including the data on 100 million customers stolen from U.S. retailer Target in 2013, and the emails filched from Sony's film studios at the end of last year, have made companies fearful of the economic consequences of cyber robbery. Yet they haven't done much to puncture the secrecy that surrounds the issue.
Barbican, a Lloyds syndicate that specializes in digital defenses, says it saw a 50% jump in demand for coverage in the first quarter of this year compared with a year earlier. Barbican's Geoff White told the Telegraph newspaper this month that business is flowing from "new customers purchasing cyber insurance and existing customers purchasing higher limits following recent high profile attacks." Marsh & Mclennan, which offers cyber insurance, reckons the U.S. market for the product doubled last year to as much as $2 billion.
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