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Role of Insurance in cybersecurity in Nigera
Being the text of a speech delivered by Chief O.E. Chukwulozie (Commissioner for Insurance, National Insurance Commission NAICOM) at the Opening Ceremony of the Cybersecurity Forum for the Financial Services Sector held at the Sheraton Hotel & Towers, Abuja on March 2 2005.
When I received an invitation from the Nigerian Cybercrime Working Group to give a goodwill message at the opening ceremony of this Conference, I was elated at this rare opportunity to briefly share my views with my colleagues in the financial services sector on the unique role that Insurance could play in promoting Cybersecurity and in fostering the growth of e-Commerce in Nigeria.
Increasingly, a large number of Nigerian entities are migrating their business processes online. Investments in and use of computers and the internet have become almost common place in Nigeria . In the area of telecommunications, investments in the sector has hit an estimated US$10 billion and we now have an estimated 10 million lines in Nigeria as distinct from the mere 300,000 lines that we had in the country before the advent of GSM and Private Telephone Operators (PTOs). Most Nigerians now wonder how we survived in the days when we had no emails, GSM, online banking transactions, etc.
Despite our remarkable leapfrogging in the Information & Communications Technology (ICT) sector, Nigerians are yet to fully enjoy the economic boom associated with ICT. In the United States of America , the value of e-commerce hit an estimated US$7 trillion by the end of last year 2004. This is expected to improve tremendously this year and in fact, analysts have put the growth rate for e-Commerce at 20% per annum.
Why is it possible for entities to carry on transactions of this magnitude online? Is it because there is zero fraud in e-Commerce activities in Europe and America ? Not at all. The fraudulent activities associated with e-Commerce in the USA alone and the scale of losses suffered by US merchants are mind-boggling, to say the least! In 2002 alone, a record US$2.1 billion was lost to e-Commerce fraud in the US . In 2004, the eCommerce fraud record set in 2002 was overtaken by an estimated $2.6 billion online fraud loss to US merchants.
Nevertheless, despite these losses, eCommerce continues to thrive in the US and like I mentioned earlier, the value of the e-Commerce market was reported to be worth an estimated $7 trillion in the US at the end of last year.
What is the major secret behind this meteoric rise in e-Commerce in the US in the face of the challenges posed by losses to fraudsters? The answer is Cyber and Network Security Insurance! The US e-Commerce environment is structured in such a way that risk transfer mechanisms are in place so that individuals do not personally bear the losses that are possible or can be occasioned during online transactions. In this and other developed countries, such losses are mitigated by Insurance based solutions.
Insurance companies in the US have been developing and marketing internet-specific insurance policies, which mitigate the effect of online fraud and other cyber risks, since 1997. To illustrate the pivotal role played by Insurance vis-a`-vis Cyber activities in the US, the Insurance sector was one of the key private sector groups invited by the US government during the development of the US National Strategy to secure Cyber space after the 9-11 attacks to work with the US government to increase corporate awareness of cyber risks and collaborate with leaders in the technology industry to promote best practices for network security.
In its report, the US Insurance sector listed five recommendations that focused on: -
* Insurance products which are designed to minimize and cover cyber
Some people may argue that with the rate of infrastructural developments and the current rate of ICT utilization in Nigeria especially for eCommerce related activities, there is really no justification for any speedy action on the part of the Insurance companies to develop and market Cyber Insurance products. In my view, such argument would not hold water as, in actual fact, there is already sufficient e-Commerce related activity. I firmly believe that the reason why the growth of e-Commerce and online business activities have not surpassed the present level in Nigeria is because there are no risk transfer mechanisms in the first place to make this aspect of business attractive in Nigeria.
Today, Cyber Insurance is set to become the most lucrative aspect of the Insurance business. Premiums written for this aspect of Insurance in the US alone is expected to exceed $2 billion within the next four years.
Whither the Nigerian Insurance sector? There is an urgent need for us to start looking into this money-spinning aspect of our business and develop new products to obtain our share of premium in this new business line.
There is no doubt that Cyber Insurance is here to stay; the question is: when are we going to be part of the action?
Please rest assured that the National Insurance Commission is prepared to give every necessary assistance to any company and the insurance industry in general in this respect.
I wish you fruitful deliberations at this Cyber Security Forum for Financial Institutions