Prices for hacking insurance are predicted to drop for some businesses as insurers begin to understand the market better.

So far in the UK the take-up of insurance against dangers such as hacking and viruses has been fairly low at about five per cent of companies, according to Stephen Wares, manager of UK technology for specialist insurer Hiscox.

Insurance can cost from £20,000 to millions of pounds depending on the size of company and type of risk.

But as insurers become more familiar with risks and build up a list of clients they will become less cautious, leading to more competitive rates for premiums, said Wares.

This will mean insurance for small and medium businesses will become cheaper. Costs for large companies, which are already well understood, are unlikely to change.

In contrast, insurance company Willis predicted recently that premiums for cyber-risk coverage in the US could jump by 25 per cent this year.

"We expect premiums for [this form of cover] to increase 20 to 25 per cent in 2004. Pricing will depend upon the client's use of the web, reliance on information systems and security profile," the insurer said.

"Security expectations are rising and markets are responding. Some insurers have already reported the number of applications for cyber-insurance increasing by 75 per cent compared to previous years."

Coverage offered by insurers includes threats such as hacking and viruses, denial of service attacks, cyber-extortion and malicious acts by employees.

It can also include down-stream liability, insuring a company against its systems being used to launch a denial of service attack against another, for example.