In light of a recent cyber risk report produced by the Lloyd’s of London marketplace and cyber risk analytics firm, Cyence, rating agency A.M. Best has welcomed the collaborative effort to improving the understanding and management of cyber risk, describing the report as “a positive step forward.”
The report, Counting the Cost: Cyber Exposure Decoded, combined expertise in cyber insurance, cyber risk modelling, and cyber security in order to produce loss scenarios as a result of a cloud service provider hack and a mass vulnerability attack.
Essentially, the report found that losses from cyber events have the potential to be in the hundreds of billions of dollars, and with cyber insurance penetration relatively low, the majority of the losses would be covered by governments, representing a potentially huge financial burden.
International rating agency, A.M. Best, has praised the collaborative effort of Lloyd’s and Cyence, stating the report is “a positive step forward in developing consistency in the measurement of cyber exposure.”
“In particular, the development of tools that support insurers’ ability to understand and manage the aggregation of cyber risk across their portfolios is welcomed,” said A.M. Best.
Reports such as the one from Lloyd’s and Cyence, which combine insurance expertise with cyber modelling expertise, support development of more accurate and realistic potential loss amounts and probabilities, which in turn, promotes and supports the development of new and innovative cyber risk products and solutions, according to A.M. Best.
More and improved granular data analytics and comprehensive cyber modelling capabilities will also enable insurers and reinsurers to “sharpen their underwriting and pricing strategies, which should ultimately unlock more capacity from traditional and alternative capital,” explained A.M. Best.
“While there is currently significant variability in model output based on data collection, data quality, embedded assumptions and parameters utilized, they are all useful tools that provide insight into cyber exposures,” continued the rating agency.
Ultimately, A.M. Best expects these factors to drive further innovation and the evolution of the cyber risk market, enabling the development of an improved ecosystem for trading cyber exposures.
“This type of collaboration by cyber modelers and insurers, with each focusing on some of the many other aspects and scenarios of this difficult risk, is a positive step forward,” concluded A.M. Best.
