Connected Homes and Cyber Insurance

Eight out of 10 U.S. consumers have a home data network and more than one-third of them connect entertainment systems, gaming consoles and other smart devices to the Internet. According to a survey from The Hartford Steam Boiler Inspection and Insurance Co. (HSB). of the 81 percent of consumers who said they have a WiFi or other home data network, 38 percent had electronic devices other than personal computers, smartphones or tablets connected to the Internet, such as smart televisions, music systems, thermostats, security cameras, door locks, alarms, and lighting.

This connectedness is increasing the risk of home cyber attacks. Although cyber attacks on non-computing home systems and smart appliances are so far relatively uncommon (10 percent of those responding were victims), the increase in connected devices is creating a new pathway for hackers and cyber thieves.

“Cyber criminals are always looking for new targets,” said Timothy Zeilman, vice president and counsel for HSB. “And home devices like smart TVs and appliances are often designed for easy use and not security. Compounding the problem, many consumers don’t take even basic measures such as changing default passwords and updating security software.”

The most common nonphysical damage experienced through attacks were viruses or other unwanted software on their systems (59 percent) and damage to software or operating systems (45 percent). Damage to home devices in a cyber-attack usually results in a financial loss, the survey showed, with 87 percent of the victims spending money to respond. The losses were often substantial — 42 percent of the victims in the survey spent between $1,000 and $5,000.

A recent study for Assurant Inc., which sells coverage for mobile devices, revealed that consumers are excited by the progression toward connected living. However, they also showed growing concerns about the risks. More than 60 percent of respondents said they were either “terrified” or “very concerned” about identity theft and cyber attacks, while 42 percent expressed concerns over privacy.

The problem will likely get worse as the number of connected home devices increases. Wealthy households are key targets as well. (see this issue’s Closing Quote, page 34)

Insurers are developing new cyber insurance coverages for individuals that can pay for expenses related to cyber attacks on home computers, home systems, and appliances and other connected devices, cyber extortion, data breach, and online fraud, which is good news.