As network and data cybersecurity solutions continue to proliferate in the industry, some investors are eyeing a different type of cyber solution for the new year, one that gives its customers peace of mind, not firewalls and endpoint tools.
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Although investment in cyber insurance—which can protect companies from losses and liability incurred from attacks and data breaches—made up a small percentage of the nearly $6.5 billion invested in cybersecurity in the U.S. last year, those who watch the area think that could start to change soon, perhaps even this year.
“I think that there’s three reasons why the timing is right now,” said Mark Sherman, managing director at Telstra Ventures. “One is that the number of risks and attacks has increased to a level such that it is so commonplace. Businesses ask, ‘How do I insure myself against that risk?’”
In addition, Sherman said he believes some of the regulatory issues that have pained the sector have been smoothed, and the infrastructure and technology is now there for the sector to see an uptick in investment as cyber threats continue to dominate headlines.
“We’re likely to make another insurance-related investment,” said Sherman, pointing out that last January his firm led a $32 million Series B in Corvus Insurance, which helps customers deal with cyber risk. “Primarily because we see this opportunity continuing to touch many different markets in the insurance space.”
Slow to move
Aside from Corvus, few others in the U.S. cyber insurance and risk market took in money in 2020. Late last year, San Francisco-based At-Bay closed a $34 million Series C, nine months after closing its Series B and bringing its total funding raised in 2020 to $74 million. San Francisco-based Coalition—considered by most to be the largest player in the space—secured $90 million in May.
In late 2019, Denver-based CyberGRX raised a $40 million Series D.
That slow trickle of investment is despite reinsurance giant Munich Re estimating the global cyber insurance market last year to be worth more than $7 billion, including $5.3 billion in the U.S alone. It expects the global market to reach more than $20 billion by 2025.
“It’s still a pretty young industry, so you have to give it time,” said Matt Kinsella, managing director at Maverick Ventures. “It is growing fast, but it is in a sector like insurance that traditionally is slow to change.”
Kinsella said as with many things in the cybersecurity world, winners in insurance will have to get an edge in distribution by selling policies through vendors who also may be selling other companies’ tools to help protect actual IT infrastructure.
Other issues around cyber insurance involve the proper assessment of risk, what losses most policies will cover, and finding reinsurers who want to be in the space.
Nevertheless, Butler said he wishes he had jumped on some earlier opportunities to invest in the space.
“I do think there’s an opportunity there,” said Butler, who added that selling policies with security tools as add-ons could be a way to gain traction in the market.
Winners in the space
Dino Boukouris, founding director of San Francisco-based financial advisory firm Momentum Cyber, said he definitely sees progress in the space, pointing out that large companies such as Coalition and even small startups like Pleasanton, California-based Cowbell Cyber have secured investments.
“I think there is a ton of money to be made there,” Boukouris said, commenting on the market.
He added that while insurance and data analytics companies likely will be interested in the cyber insurance space, he does see early movers continuing to lead the way as they find ways to automate and optimize the insurance process.
Sherman agrees, saying winning companies will be those able to build an end-to-end insurance platform, from the customer side to the broker side to the analytics and underwriting side, Sherman said.
“There’s going to be some opportunities to build some big public companies in this area,” he said.
“I actually think that the winning companies will probably go public, and then the companies that are good — but maybe not as strong — will help to support some of the existing insurance companies as a way of them strategically expanding into this business,” he added.
Illustration: Dom Guzman
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