A new report from Lloyd’s and AIR Worldwide, analyzing the financial impact of the failure of a leading cloud provider in the United States for three to six days, concluded that it would result in economic losses of $15 billion and up to $3 billion in insured losses.
The report found that companies outside of the Fortune 1000 — which are more likely to use cloud provider services — would carry a larger share of the economic and insurance losses than Fortune 1000 companies. However, the biggest 1,000 companies in the United States still would carry 38% of economic losses.
Among other things, the report also found:
— Businesses outside the Fortune 1000 would carry 63% of economic losses and 57% of insured losses — indicating that they are at the highest risk.
— Fortune 1000 companies would carry 37% of economic losses and 43% of insured losses.
If a top cloud provider went down:
— Manufacturing would see direct economic losses of $8.6 billion;
— Wholesale and retail trade sectors would see economic losses of $3.6 billion;
— Information sectors would see economic losses of $847 million;
— Finance and insurance sectors would see economic losses of $447 million; and
— Transportation and warehousing sectors would see economic losses of $439 million.
|Detailed picture of costs
“This report provides a detailed picture of the costs to the U.S. economy as a result of a cloud service provider failure, said Trevor Maynard, head of innovation at Lloyd’s. "Clouds can fail or be brought down in many ways — ranging from malicious attacks by terrorists to lighting strikes, flooding, or simply a mundane error by an employee. Whatever the cause, it is important for businesses to quantify the risks they are exposed to as failure to do so will not only lead to financial losses but also potentially loss of customers and reputation,” Maynard noted.
“A major cloud failure would significantly impact the insurance industry, and our research has shown that such an event is plausible," according to Scott Stransky, assistant vice president and principal scientist at AIR Worldwide. "The findings from this report show that while the cyber insurance industry is growing, there’s still a significant gap in cyber coverage. We hope the report will help raise awareness across the industry as to how significant losses could be, how likely they are, and provide an opportunity for insurers to better understand and manage cyber risk. With proper models such as AIR’s, the industry will be able to grow the market by confidently writing more cyber policies. The goal is to make insurers and all organizations that rely upon cyber insurance more resilient if the cloud does go down,” Stransky remarked.
Victoria Prussen Spears, Esq., ([email protected]) is associate director of FC&S Legal, editor of the Insurance Coverage Law Report, and senior vice president at Meyerowitz Communications Inc.
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Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].
