Businesses in the US could lose up to $19 billion if a top cloud provider like AWS or Microsoft Azure faces a downtime of three to six days, reveals a report from Lloyd and AIR.
The report, “Cloud Down – The impacts on the US economy”, is co-produced by insurance specialist – Lloyd, and risk modeler – AIR Worldwide, both of which together analyzed losses of 12.4 million US organizations.
“This report provides a detailed picture of the costs to the US economy as a result of a cloud service provider failure. 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. said Trevor Maynard, Head of Innovation at Lloyd’s.
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,” he added.
Most of the burden of cloud outage (63% of economic losses and 57% of insured losses) will fall on small and medium sized businesses who are out of Fortune 1000 companies. However, the Fortune 1000 companies too will suffer 37% of the total economic losses and 43% of insured losses.
The cloud down or cloud outage is a period when the cloud services are not available. It can be caused due to loss of power, failed backups, natural disasters, software bugs, network connectivity issues, DDoS attacks, or even human error.
In case a leading cloud provider experiences the cloud outage, the manufacturers would see direct loss of $8.6 billion, while wholesale and retail could lose $3.6 billion. Other industries who can face huge economic losses include information sector ($847 million), finance and insurance sector ($447 million), transportation and warehousing sector ($439 million).
“A major cloud failure would significantly impact the insurance industry, and our research has shown that such an event is plausible. 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,” said Scott Stransky, assistant vice president and principal scientist at AIR Worldwide.
AIR said that these figures are an approximation, but it is confident that the losses will range between $11-$19 billion.
The findings from the report suggest that the cloud downtime of a cloud service provider in the US can significantly affect the manufacturing and retail industry because of their heavy dependence on the cloud services. However, there are differences between the ground-up losses and insured losses. Hence, the insurance industry can help businesses recover extreme scenarios of cyber risk aggregation.