The structures and products developed to tackle cyber risk over the next five years will take the global re/insurance market by storm and drive forward innovation, according to Tim Faries, Bermuda Managing Partner at global law firm Appleby.
In a conversation with Faries at Appleby’s Bermuda offices, he explained how the industry is not going from a well-worn playbook when it comes to tackling cyber threats, and is instead “basing things on principles that have worked in the past in different contexts.”
Indeed, cyber’s omnipresence across multiple lines of business has been forcing the industry to re-evaluate its traditional approach to risk.
Only recently the International Underwriting Association published two new London Market model clauses to help underwriters manage cyber losses and address issues related to non-affirmative cover.
Both clauses were developed in response to concerns raised by the UK’s Prudential Regulation Authority about the unclear provision of cyber coverage for various classes of insurance business.
Despite its inherent challenges, the presence of cyber-related products continues to grow, with a recent report showing cyber security spending across 5,400 organisations to have increased significantly from the previous year, with total expenditure reaching $7.9 billion.
“If you look at the rising risks among most organisations, cyber is right up there, if not at the very top of the list,” Faries noted. “That was far lower ten years ago.”
“One stat that struck me recently was: by 2021, just two years from now, the cost of cyber crime may reach $6 trillion, an immense number which would be challenging for traditional markets to underwrite anywhere near that.”
“And now – because in a capitalist system supply will follow demand – as the realisation of cyber threat grows around boardroom tables, there is a growing demand for products to help manage the financial exposure.”
However, despite the seemingly inevitable role cyber insurance will play long-term, Faries did flag the industry’s near-term ability to keep up with the risk.
“The rise of cyber threat and questions around whether the market is going to be able to successfully create products and structures to help business mitigate and manage that risk [is a concern].”
“Right now it is uncertain as to how big it is going to get,” he added. “It is a very different world of risk than even ten years ago.”
“I am mostly an optimist so I see opportunities rather than threats more often.”