Cyber Risks May Surpass Weather Threats for Insurers

Australia’s insurance industry is adapting to a changing risk landscape, with cybercrime emerging as a significant long-term challenge that could eventually become more impactful than climate-related disasters. While insurers are currently focused on severe weather events and their related claims, concerns are increasing that limited cyber coverage, particularly among small and medium-sized businesses, could leave the sector vulnerable to a growing number of digital threats.

At present, the spotlight remains on natural disasters such as floods and bushfires, which have led to higher claim volumes in recent years. However, industry experts are cautioning that the rapid rise in cyber threats cannot be ignored. A key concern is the low level of cyber insurance adoption. Only about 20% of small and medium-sized enterprises (SMEs) have dedicated cyber policies based on recent industry data.

Cybercrime is already causing significant financial damage. In 2023 to 2024, small businesses reported an average cost of $49,600 per cyberattack. Medium-sized firms reported an average loss of $62,800, a slight decrease from the previous year. Nevertheless, roughly 43% of cyberattacks in Australia target SMEs. Many of these businesses do not use external IT security services or have internal cybersecurity expertise, leaving them highly exposed.

Cyber insurance does more than provide financial support. It includes rapid incident response, recovery assistance and planning support during a cyber event. A comprehensive policy helps identify weaknesses, reduce further damage within the crucial first 24 hours and manage communication and public relations during recovery. Despite growing awareness, adoption remains limited. Businesses are cautious about taking on additional costs, especially given the rising premiums in general insurance.

Looking ahead, if cyber insurance uptake stays low while attack volume continues to rise, insurers may face broader systemic risks that could undermine the stability of the sector. Industry leaders are urging better education and greater collaboration across stakeholders to bring cyber preparedness in line with other established risk areas. Although climate change has taken priority in recent years, cybercrime is quickly emerging as a critical issue that insurers must address with equal attention.

Source: Australian Financial Review, KPMG, CyberCX, Grand View Research

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