Cyber Risk Insurance for Business: Who Insures Carding Losses and How, and Why It's Getting More Expensive

[Professor]

Abstract: In the age of ubiquitous digitalization, business operational risks are seamlessly shifting from the physical to the virtual world. Card fraud (carding) has ceased to be a problem solely for banks, becoming a significant threat to retail, hospitality, and online services. In response to this challenge, a special segment of the financial market has emerged — cyber insurance. This article offers a calm and in-depth dive into the world of such policies: how they are structured, who the key players are, and the underlying trends driving the steadily rising cost of protection against digital threats.

Introduction: From a Computer Virus to a Systemic Risk to Revenue​

Cyber risks were once associated with viruses that disabled office PCs. Today, they are a complex threat capable of paralyzing sales, damaging reputations, and leading to direct financial losses. For businesses that accept card payments, card fraud is one of the most tangible cyber risks. It's not an abstract "vulnerability," but a concrete incident that can lead to:

• Direct losses from customer refunds (chargeback).
• Operational costs for investigation and restoration of systems.
• Reputational damage and loss of customer trust.
• Fines and sanctions from payment systems (PCI DSS non-compliance).

Cyber risk insurance has become the umbrella that helps companies weather the digital storm without going bankrupt. It's not just financial compensation, but part of a resilience strategy.

1. Security Architecture: What Makes a Cyberpolis​

A typical cyber insurance policy is modular. The policyholder can tailor it to their needs by selecting options, like in a construction kit.

1.1. Module One: First-Party Cover.
This covers the insured business's direct expenses resulting from an incident.

• Investigation and recovery costs: Fees for digital forensics experts, IT specialists, and lawyers.
• Business Interruption Losses: Compensation for lost revenue due to payment system or website downtime.
• Costs of Notifying Customers: If a card data breach occurs, the law requires that all affected parties be notified, which is a costly process.
• Digital Asset Ransomware: While not directly related to carding, it is often included in policies. This covers the costs of negotiating and paying the ransom in the event of a system block.

1.2. Second module: Third-Party Liability Cover.
This is protection in the event of third-party claims against the company.

• Protection against recourse claims from banks and payment systems. If the issuing bank has compensated its client for losses, it may file a recourse claim against the merchant that facilitated the fraudulent transaction. Insurance covers these claims.
• Protection from customer lawsuits (Data Breach Liability). If customers sue for disclosure of their financial data.
• Compliance costs. Fines and costs associated with bringing systems into compliance with regulatory requirements (e.g., PCI DSS) after an incident.

1.3. Key Option: Fraud & Card Fraud.
This specific coverage can be either part of a policy or a separate product. It focuses specifically on losses from:

• Fraudulent transactions accepted by the company.
• Theft of payment card data stored in its systems.
• Social engineering, where a fraudster tricks a company employee into initiating a payment.

Important note: The policy usually does not cover losses associated with failure to fulfill a contract or errors in work, namely intentional or hacker attacks.

2. Market Landscape: Who Provides Digital Umbrellas?​

The cyber insurance market is a dynamic ecosystem with different types of players.

• Traditional insurance giants (AIG, Chubb, Allianz, Ingosstrakh, AlfaStrakhovanie). They possess financial strength, global reach, and offer comprehensive corporate policies, where cyber risks are one of many options. Their strength lies in the depth of their risk analysis and their credibility.
• Specialized "digital" insurers (Beazley, Coalition, Cyber Insurance). These are new players focused exclusively on cyber risks. Their advantages include deep expertise in IT security, product flexibility, and often more modern underwriting approaches, including automated analysis of a company's digital footprint.
• Lloyd's of London and its syndicates. This unique market is the epicenter of innovation in insuring complex and non-standard risks, including the largest and most risky cyber portfolios.

Underwriting: How is risk assessed?
Instead of analyzing accident or fire statistics, a cyber risk underwriter examines a company's digital maturity:

1. Technical infrastructure: Is multi-factor authentication used? How frequently is the software updated? Are penetration tests performed?
2. Compliance: Is your company PCI DSS certified? Is your company GDPR/FZ compliant?
3. Human Factor: Are employees trained in cybersecurity? Is there a data processing policy?
4. Processes: Is there an incident response plan (IRP)? How is transaction fraud monitoring configured?

The better the answers, the lower the insurance rate.

3. The Rising Trend: Why Digital Storm Defense Is Getting More Expensive​

The steady rise in the cost of cyber insurance (by 20-50% annually in recent years) is not a whim of insurers, but a reflection of objective global trends.

• Reason 1: Increased frequency and cost of incidents (loss ratio). Carding has become an industry. Automated attacks, carding-as-a-service (CaaS), and the rise of online payments after the pandemic have led to an explosive increase in incidents. Insurers' losses are rising, and rates are being adjusted to reflect this new reality.
• Reason 2: Growing interconnectedness (Aggregation Risk). Insurers fear a "cyber hurricane" — a single vulnerability (for example, in a popular payment module) that would affect thousands of insured companies simultaneously, causing colossal aggregate claims. This systemic threat is factored into the policy price.
• Reason 3: Lack of historical data. Unlike a century of fire statistics, the history of cyber risks is short and dynamic. Insurers operate in a highly uncertain environment, forcing them to factor a higher risk percentage into their premiums.
• Reason 4: Increasing regulatory complexity. The introduction of strict regulations like the GDPR has dramatically increased the potential costs of data breaches for companies (fines up to 4% of global turnover). Insurers now also cover these regulatory risks.
• Reason 5: Talent shortage. Professional cyber risk underwriters and adjusters are extremely scarce globally. Their high salaries also become part of insurance companies' operating expenses, affecting policy prices.

4. The Future: From Compensation to Partnership and Prevention​

Insurers recognize that simply paying out claims is a dead end. Therefore, the market is evolving toward a proactive risk management model.

• Preventative security services. Many policies now include not only payouts but also free access to services such as vulnerability scanning, security consulting, and employee training platforms (phishing simulations). It's a win-win: the company increases its security, and the insurer reduces the likelihood of an incident.
• Partnerships with technology companies. Insurers actively collaborate with security vendors (EDR, SIEM), offering discounts on their products to their clients, creating a more secure ecosystem.
• Data-driven rate differentiation. The most advanced insurers are implementing dynamic pricing, where rates can be adjusted in real time based on the company's safety telemetry data, obtained with its consent.

Conclusion: Investing in Digital Resilience​

Cyber risk insurance, including carding protection, is no longer an exotic option for tech giants. It's becoming as essential a component of business financial planning as property insurance.

Its rising value isn't simply the policy price, but a reflection of the growing value of a company's uninterrupted digital operations and the value of its customers' trust. Ultimately, it's a tool not only for financial compensation but also for a structured approach to managing one of the most serious risks of the 21st century. By investing in such a policy, a business is investing in its ability to confidently continue operating even when digital waters become choppy, turning an unpredictable threat into a manageable and calculated operational parameter.