Insurance for cloud providers will help them attract business customers, says expert

Cyber liability and data breach insurance specialist Ian Birdsey of Pinsent Masons, the law firm behind Out-Law.com, said that insurers have traditionally been "reluctant" to insure providers of cloud services. He welcomed the development of a new insurance scheme specifically designed for providers of cloud computing services. 

Birdsey was commenting after a group called the International Association of Managed Service Providers (MSPAlliance) announced that it had partnered with insurance firm Lockton Affinity to offer its members the chance to obtain 'Cloud and Managed Services Insurance'. The product, MSPAlliance said, provides cyber, contractual and general liability coverage, among other things. 

MSPAlliance, which is a managed services industry trade and accreditation body, has advised its 15,000 members to take up the new insurance. It said that the cyber insurance can help protect cloud providers from costs (2-page / 280KB PDF) associated with cyber attacks, data loss and system outages, as well as to losses sustained as a result of any damage to their reputation as a result of cyber incidents. 

"A new bespoke insurance product for cloud computing providers represents a really interesting and significant development," Birdsey said. "Insurers have to date been reluctant to insure cloud computing providers or develop products for this specific market because of the potential exposures. In the event of an incident, whether as a result of a data breach, network failure or outage, insurers have traditionally feared an aggregation of claims against cloud computing providers. Unlike non-cloud solutions, an incident is likely to affect a number of customers due to their business model and technological infrastructure." 

"The availability of insurance represents an important step forward for cloud providers in terms of persuading potential customers to consider and adopt cloud solutions. Small to medium sized providers are now perhaps more likely to offer service credits and/or compensation to customers in the event of an incident where they are indemnified by an insurer. The risk remains that insurers will seek to aggregate claims and offer aggregated policy limits as opposed to ‘each and every claim’ based limits such that cloud providers might find that they are significantly under-insured in the event of an incident. What remains to be seen, however, is whether the Tier 1 suppliers such as Amazon and Microsoft will change their approach and terms to fall in line," he added.