How Two Former Spies Cracked The $11 Billion Cyber Insurance Market

Forbes

Fintech startups Coalition and At-Bay, founded by security and spy-agency veterans, are using their tech smarts to transform the fast-growing business of protecting companies against hackers. Forbes Senior Editor Jeff Kauflin sat down with Brittany Lewis to explain more about this new aspect of cybersecurity.  0:00 Introduction 0:21 Reinventing Cybersecurity 1:35 Recent Rise In Spyware Attacks 4:46 What Is The Price Of Cybersecurity For Business Owners? 5:44 The Price Of Cyber Insurance 8:05 Cyber Threats Are Not Going Awaya  Read the full story on Forbes: https://www.forbes.com/sites/jeffkauflin/2024/02/12/how-two-former-spies-cracked-the-11-billion-cyber-insurance-market/?sh=5b4e07086cc9  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Hi everybody, I'm Brittany Lewis with Forbes Breaking News.

00:05 Joining me now is my colleague, Forbes Senior Editor Jeff Kaufman.

00:09 Jeff, thanks so much for coming in.

00:11 Thanks for having me.

00:12 I first want to extend a big congratulations.

00:15 The FinTech 50 list has officially dropped, so I'm sure that's a weight off your shoulders.

00:20 Yep, yep.

00:21 Great to have it done.

00:22 And part of that story, or part of that list rather, you wrote a story about two upstarts

00:26 attempting to transform the cyber insurance industry, and you detail in the story how

00:30 these companies have been quote, "reinventing the way cyber insurance is underwritten and

00:35 managed."

00:36 So first, can you give us an overview of what the story is about?

00:39 Absolutely, yeah.

00:40 So it's about, it's really focusing on these two companies, two fast-growing startups,

00:45 and really the dynamic going on in the overall market is cyber attacks.

00:50 You know, ransomware, business email phishing, where people are tricked into paying for a

00:56 fake invoice for hundreds of thousands of dollars, and this threat is not going away.

01:02 It's hard to manage.

01:03 It's always going to be a risk, and so companies realize they need insurance to protect against

01:07 it, just like you need to protect against fires, theft, floods.

01:13 And so what's happening is more and more companies are paying for cyber insurance, and these

01:19 cyber insurance startups are really using technology to do it in a smarter way, to assess

01:25 risk in a smarter way, and to provide better coverage.

01:28 So Jeff, can you give us the origin story a bit here?

01:32 How did this type of cybersecurity become a viable business need?

01:35 Yeah, I would say just the rise in ransomware attacks has caused more of a need for it,

01:42 and so, you know, I think in the first half of 2023, the average ransomware demand was

01:48 1.6 million, and so that cost has gone up and up and up over time.

01:53 It used to be, you know, in the hundreds of thousands or even lower, but especially during

01:58 the pandemic, it's gotten worse and worse, and so the need for it has just grown.

02:03 And even farther back in history, there's been some things like privacy issues or data

02:09 leaks.

02:10 Target had a big one many years ago, and these have caused, you know, over tens of billions

02:16 -- not tens of billions, but billions of dollars potentially in losses for a lot of these companies.

02:21 So you profiled two cyber insurance companies, Coalition and AppBay.

02:26 Can you talk a little bit about them?

02:28 Sure.

02:29 So they started around 2017, and one of the things they did really differently is they

02:36 used technology in a different way to assess risk.

02:38 So because of the open nature of the internet, you can actually scan companies, their websites,

02:45 their networks, and understand how vulnerable are they to a cyber attack.

02:52 And so what they can do is -- and this technology has become more widely available -- they can

02:57 do this scanning.

02:58 It's almost like going to someone's house and checking their locks and their security

03:01 system and seeing, okay, this company has poor security controls.

03:07 They have kind of a messy network with a bunch of holes in it, and so then they can price

03:12 the insurance higher.

03:14 And so they were among the first companies that started using technology to better assess

03:18 risk, and then they can price it more appropriately and figure out how much coverage they can

03:24 offer at what price.

03:26 Something when I was reading your profile I noticed is that the Coalition CEO and co-founder

03:30 is a former CIA analyst, and the AppBay CEO and co-founder is a veteran of one of Israel's

03:37 military cyber intelligence units.

03:39 So is this common, or is this just a coincidence for, in this space, to be formally government-trained

03:44 either through intelligence agencies or the military?

03:48 Yeah.

03:49 It is, I believe, it's a coincidence.

03:51 I think that it's really surprising that two of the leading companies are both former,

03:59 you know, essentially CIA or CIA equivalent within the case of AppBay.

04:05 And so, yeah, I think it's a coincidence.

04:08 A lot of the other companies you see, some of the other companies you see, they were

04:11 security entrepreneurs or tech entrepreneurs, or they were in insurance, you know, insurance

04:19 executives.

04:20 And so I think it's just kind of a funny coincidence, but it has made them better able to assess

04:26 risk, I would say, because they can kind of think like hackers.

04:29 You know, AppBay and Coalition's founders, they essentially were studying hackers in

04:34 the CIA and in the Israeli military intelligence.

04:37 And so they learned how to think like hackers, and I think that helped them to really develop

04:43 the technology that would assess risk better.

04:47 One of the CEOs that you mentioned in your profile said something to you to the effect

04:51 of if your business has a computer and the internet, you need cybersecurity.

04:55 So obviously, I want to talk about money here, because if you need cybersecurity, that's

05:00 probably coming at a price.

05:02 What is that price?

05:03 Yeah, and it ranges.

05:05 There's a wide range.

05:06 These companies, AppBay and Coalition, really serve the smaller and mid-sized businesses.

05:12 On average for them, Coalition tells me that it costs about $3,000 a year for the premiums.

05:19 But as the companies go bigger, it can cost a lot more.

05:22 So if you're looking to get, let's say, $10 million in coverage, and you have pretty good

05:28 security controls, Coalition says that kind of policy might cost $120,000 a year.

05:34 And if you have poor security controls, the cost only goes up.

05:39 As more competitors flood the zone here, do you see that these costs will come down any

05:44 time soon?

05:45 They have been coming down a little bit.

05:46 So 2023, basically, the price for cyber insurance fell about 20%.

05:52 And it goes up and down, and this happens in all types of insurance, where there is

06:00 limited capacity, and so prices go up, because a lot of insurers become more risk-averse,

06:06 and prices go up, and you can charge a lot more.

06:09 And then more competitors come in, like you said, and capacity widens, and prices come

06:15 down.

06:16 So it kind of always fluctuates.

06:17 But yeah, over the past year, about 20%.

06:20 Prices fell about 20%.

06:21 You mentioned earlier in the conversation numbers that start with an M, million.

06:26 So I want to talk about the flip side here.

06:28 Let's say you're a company, you get hit with a cyber attack, you are not cyber insured,

06:34 what is that going to cost you?

06:35 Yeah, you know, that's a great question.

06:39 It depends on the size of the company, always.

06:42 But let's say-- and one of the things that actually causes some of the biggest losses

06:47 is if your operation totally stopped.

06:50 So there's one example we talk about in the story of a distillery, where they had a hacker

06:56 break in and was able-- essentially shut down their whole operations.

07:02 And so they had a lot of lost revenue.

07:05 And I think the lost revenue was about-- it was a smallish business, but it was about

07:10 $800,000 in lost revenue.

07:13 And then there was a ransomware piece of this, where they had to pay the ransom to get back

07:17 online.

07:18 That was maybe $600,000.

07:19 Anyway, the total cost was about $2 million.

07:22 Luckily for them, they had cyber insurance, and so they didn't have to pay that themselves.

07:29 And they were only paying, I'd say, maybe $20,000 a month in premium.

07:35 So for $20,000 a month, they were able to get a $2 million claim paid.

07:43 In your profile, you also quote a CEO saying, "I've worked in security for a really long

07:48 time.

07:49 This is all I think about.

07:50 But essentially, no one else is really thinking about this."

07:53 So let's look into the future a bit here.

07:56 And based on your reporting, do you think more individuals and companies are going to

08:00 become cyber insured or get services like these for protection online?

08:05 Yeah.

08:06 I think it will keep growing.

08:07 I think that because the cyber threat is not going away, it's only growing, just like financial

08:13 fraud is very similar.

08:15 So I think it will keep growing.

08:17 I think that what everyone worries about is a big catastrophic event.

08:22 That's what they call it in the industry, where you're going to see billions of dollars

08:26 in damage.

08:27 And the scary thing about cyber is it can kind of go viral in a way.

08:33 There's no geographical borders that prevent a given cyber attack from reaching all parts

08:39 of the world.

08:40 It can really spread.

08:42 It can kind of...

08:43 And so if there's a real critical vulnerability, let's say in a piece of software that's used

08:49 every day by people.

08:50 And so I don't think the risk is going away.

08:55 I think it's still not very well understood.

08:58 And people worry that it's just going to get bigger.

09:00 I think people will keep buying cyber insurance.

09:03 It is the fastest growing area of insurance right now by far.

09:06 Jeff Coughlin, a big congrats again on the list.

09:10 Thank you so much for joining me.

09:11 Thanks so much for having me.

09:12 This was fun.

09:12 [END OF TRANSCRIPT]

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