Businesses must prepare for rapidly evolving cyber risks that may cause catastrophic losses, according to Allianz Global Corporate & Specialty (AGCS).

In a new report the specialist insurer says cyber crime costs the global economy $US445 billion ($632 billion) a year.

AGCS says fewer than 10% of companies currently buy cyber-specific insurance, but the sector will grow rapidly thanks to increasing awareness and regulatory change.

Premiums are expected to grow from $US2 billion ($2.84 billion) a year currently to more than $US20 billion ($28.4 billion) a year by 2025.

“As recently as 15 years ago, cyber attacks were fairly rudimentary and typically the work of hacktivists, but with increasing interconnectivity, globalisation and the commercialisation of cyber crime there has been an explosion in both frequency and severity of cyber attacks,” AGCS CEO Chris Fischer Hirs said.

“Cyber insurance is no replacement for robust IT security, but it creates a second line of defence to mitigate cyber incidents. AGCS is seeing increasing demand for these services, and we are committed to working with our clients to better understand and respond to growing cyber risk exposures.”

Attention has previously focused on the danger of corporate data breaches and privacy concerns, but the new generation of cyber threat is more complex.

Future risks will come from intellectual property theft, cyber extortion and the impact of business interruption, the report says.

The increasing interconnectivity of everyday devices, known as the Internet of Things, creates further vulnerabilities. By 2020, 1 trillion devices may be connected.

AGCS warns the chances of a catastrophic loss are increasing.

Possible scenarios include an attack on the core infrastructure of the internet, a major data breach or network outage for a cloud service provider or a cyber attack on an energy or utility company.

AGCS says cyber insurance needs to provide broader and deeper coverage. “While cyber exclusions in property and casualty policies are likely to become commonplace, standalone cyber insurance will continue to evolve as the main source of comprehensive cover.”