Demand for cyber insurance is rising before the introduction in March of privacy laws that carry tough penalties for data breaches, AIG Australasian Professional Indemnity Manager Matthew Clarke says.

AIG and the University of Canberra’s Centre for Internet Safety are releasing a white paper that estimates 65% of sensitive or confidential information held by SMEs is not encrypted or safeguarded by cyber cover.

The new Privacy Act will carry data-breach fines of $1.7 million for companies or $340,000 for individuals.

“Insureds are very much aware of their exposure under the Act,” Mr Clarke told insuranceNEWS.com.au.

Cyber cover will become a core insurance product in the next five to 10 years but is currently a new area for insureds and brokers, he says.

Standard business insurance policies cover tangible assets with electronic data, but cyber insurance will also cover recovery of lost data, business interruption costs and even legal fees.

Good cyber insurance policies contain third-party liability coverage, including breaches of personal information and corporate data, Mr Clarke says.

They can also cover claims arising from network outages, spread of viruses or malicious codes, computer theft and extortion.

First-party losses including public relations costs, client notification expenses and regulatory fines and IT forensic investigation fees should be covered.

Companies can reduce cyber cover premiums by ensuring they have simple defences such as firewalls and anti-virus protection, plus a tested and benchmarked incident response package for data recovery.

AIG has written cyber cover in the US – where there have been large claims – for 10 years, but in Australia for just one year.

Sony PlayStation is still before US courts following a major cyber attack in 2011, but Zurich American Insurance denies it is liable because digital attacks were not covered by the company’s general insurance policies.

AIG says there is “a lot of interest at the top end of the market” for its CyberEdge product in Australia, but take-up has been strongest among SMEs, due to “significant premium considerations”.