Specialist reinsurance broker Capsicum Re has announced that it is collaborating with AIR Worldwide, the catastrophe risk modelling arm of Verisk Analytics, in order to enhance the re/insurance industry’s modelling of silent cyber incidents.
As part of the arrangement, Capsicum Re has also adopted AIR’s cyber modelling and analytics platform, ARC, which includes a range of cyber scenarios and models to deliver insights to its insurance portfolios.
The collaboration will see the two firms attempt to identify which non-cyber lines of business are more likely to be exposed to silent cyber-related losses, and to improve the availability of models that simulate the impact of incidents that could cause these losses.
The silent cyber models are expected to be available in upcoming versions of ARC and through Capsicum Re’s broking service, building on the deterministic modelling capabilities currently available within ARC, as well as the probabilistic capabilities available through AIR’s consulting services.
“Silent cyber exposure could exist in some insurance policies when cyber-related risks are not specifically included or excluded in the policy wording,” said Prashant Pai, Vice President of Cyber Offerings at Verisk.
“As a result, it’s possible the insurance industry could face higher-than-expected loss ratios when cyber incidents occur if certain cyber-related exposures are not necessarily accounted for during the underwriting process,” he continued.
Scott Stransky, Assistant Vice President and Director of Emerging Risks Modelling at AIR, also commented: “There’s a lot of uncertainty surrounding cyber risks, and these could result in losses for property, professional, marine, and other non-cyber lines of business. The models we’re developing in collaboration with Capsicum Re can help the insurance industry assess and quantify silent cyber risks appropriately.”
Ian Newman, Global Head of Cyber at Capsicum Re, further stated: “Given the rapidly evolving nature of cyber risk, it’s likely that insurance policy wordings will be challenged to keep up, and some forms of silent cyber exposures could always exist.
“Our goal is to better advise insurers and reinsurers about the nature of cyber risk and help the industry develop innovative risk-transfer solutions that truly reflect the underlying risk exposure. We’re excited to work with AIR to improve our industry’s ability to understand and manage silent cyber risks.”
Finally, Justyna Pikinska, Actuary at Capsicum Re, said: “Silent cyber is an area of growing concern, and the market is actively researching different ways to quantify it. It’s widely discussed by the actuarial community, and we see a significant uptick in requests for specialized models to be developed-both deterministic and stochastic.
“We have a great opportunity with AIR to develop a reliable probabilistic model to assess the volatility around the mean and quantify the probability of extreme cyber events,” she added.