A new report on the cyber risk outlook by Allianz Commercial reveals that cyber claims have continued their upward trend over the past year, driven in large part by a rise in data and privacy breach incidents. The frequency of large cyber claims (>€1 million) in the first six months of 2024 was up 14% while severity increased by 17%, according to the insurer’s claims analysis, following just a 1% increase in severity during 2023. Data and privacy breach-related elements are present in two-thirds of these large losses. Overall, the total number of cyber claims in 2024 is expected to stabilize, following a 30% increase in frequency during 2023, which resulted in 700-plus claims.
The growing significance of data breach losses among cyber insurance claims is driven by a number of notable trends. A rise in ransomware attacks, including data exfiltration, is a consequence of changing attacker tactics and the growing interdependencies between organizations sharing ever more personal records. At the same time, the evolving regulatory and legal environment has brought an uptick in so-called "non-attack" data privacy-related class action litigation, resulting from incidents such as wrongful collection and processing of personal data – the share of these claims has tripled in value in two years alone.
See also: Top 10 Challenges for Data Security
"Non-attack" claims increase as privacy litigation ramps up
The rise in "non-attack" data privacy claims is the consequence of developments in technology, the growing commercial value of personal data, and a developing regulatory and legal landscape. For example, unlike the EU’s General Data Protection Regulation (GDPR), privacy regulations in the U.S. are less prescriptive and open to interpretation, while plaintiff lawyers are hungry for potential sources of revenue. This is creating a gray area that is ripe for class action litigation, the report notes.
We are seeing more data privacy breach claims in the U.S. where there is a growing trend for class action litigation against large U.S. and international corporations related to privacy violations, such as around consent and data usage. The cost of some of these claims can be even larger than a ransomware incident, in the hundreds of millions of dollars.
Over the last year, in particular, data breaches have emerged as one of the fastest-growing areas of U.S. class action litigation. Over 1,300 were filed across a wide range of data privacy regulations in 2023, more than double the number filed in 2022 and four times that filed in 2021, according to law firm Duane Morris.
Multiple class action lawsuits have been launched against organizations across a wide range of industries, including healthcare, social media, and gaming, for using tracking tools such as Meta Pixel to monitor consumer behavior, while entertainment streaming platforms have also been targeted, alleging that they may have violated privacy protection rights. Large data breach events can also evolve into hyper litigation, with one event triggering a slew of class actions. More than 240 lawsuits related to the 2023 MOVEit data breach were consolidated into a single multidistrict ;itigation in October 2023. And with large numbers of claimants, there are incentives for parties on both sides to settle. The top 10 data breach class action settlements last year totaled $516 million, a significant increase over the $350 million recorded in 2022.
The risk of data breach litigation is also growing in Europe. Heightened awareness of data protection rights, a rise in the availability of third-party litigation funding, and a more consumer-friendly litigation environment could make mass data privacy claims a reality, albeit not on the same scale as in the U.S., the report notes.
AI to power and prevent future data privacy breaches
The fact that almost every industry is now using artificial intelligence (AI) will have a significant impact on the cyber and privacy risk landscape. AI relies on the collection and processing of vast amounts of data, including personal, health, and biometric information, for training AI models and making predictions or recommendations. But AI tools such as chatbots can create potential privacy, misinformation, and security risks if not properly managed. With so much data being collected and processed, there is a risk that it could fall into the wrong hands, either through hacking or other security breaches. There are also concerns around potential breaches of privacy laws, such as whether organizations have proper consent to process data through AI.
See also: The Evolving Landscape of Cyber Risk and Insurance
From data exfiltration to data protection
Despite a general trend for increased investment in cyber security in recent years, many data breaches, including some of the largest mass data exfiltration cyber attacks over the past 18 months, are the result of weak cyber security within organizations or their supply chains.
Such incidents can lead to a large claim involving regulatory fines, notification costs, and third-party litigation, in addition to extortion demands, first-party costs, and business interruption.
Data breach risks are best mitigated through good cyber hygiene, including strong access controls, database segregation, backups, patching, and training. Having better oversight of any cyber weaknesses in their supply chains is an area where many companies need to improve.
To read the full Allianz Cyber Risk Trends Report, please visit: cyber-security-trends-2024.pdf (allianz.com)
