The Insurance Council of New Zealand (ICNZ) says a global report highlighting protection gaps for cyber risks and natural disasters is particularly relevant locally.

The Global Federation of Insurance Associations (GFIA) has identified a worldwide shortfall in cover of around $US900 billion ($1.3 trillion) for cyber risks and around $US100 billion ($149 billion) for natural disasters.

ICNZ CEO Tim Grafton, who is also GFIA Vice-President, says cyber security is often “poorly understood and inadequately implemented” outside of providers of crucial physical and economic infrastructure.

“It is a particular issue for an economy like ours that is characterised with a very large proportion of small and medium-sized enterprises who can lack the capacity to deal with the issue,” he said.

“Education is essential, as too are incentives, including in the form of premium discounts for taking sensible steps to reduce the risks.”

Mr Grafton says natural disaster cover is very topical in New Zealand currently, and the country faces the issue of protecting its position as a global leader in the area.

“Central to preserving this is getting much smarter about where we build and maintain our homes, businesses and infrastructure, while taking action to reduce risks so that insurance can remain both available and relatively affordable on an all-risks basis to property owners and insurers alike,” he said.

“What we mustn’t do is subsidise people to stay in harm’s way.”

The report, which also identifies global protection gaps in health and pensions, outlines recommendations for policymakers.

On cyber they include not prohibiting ransomware payments, as that could discourage the reporting of attacks and penalise victims, while it proposes facilitating the sharing of aggregated data with insurers and academics for risk modelling and mitigation.

On natural catastrophes its recommendations include strong and enforced land-use controls and building codes, and the promotion of close cooperation between public and private sectors. It also suggests considering and promoting solutions such as parametric insurance or cat bonds “where appropriate”, and looking at microinsurance, especially in emerging economies.

GFIA says although the supply of cyber insurance is expected to grow, it’s unlikely the protection gap will be close soon due to the small share of insured losses today and the rapid speed of digitisation, which is making businesses increasingly vulnerable.