A new report by specialist reinsurance broker Capsicum Re has contended that cyber perils transcend traditional lines of business and challenge the very concept of war as it has historically been understood by the re/insurance market.
Analysts argue that current war exclusionary language has been rendered unfit for purpose, due to a blurring of the lines between non-malicious cyber incidents, cyber-crime, cyber terrorism, and state-sponsored cyber-attacks/acts of war.
It is almost impossible to determine the motivations and origins of the vast majority of cyber-attacks, partly because the re/insurance market can’t rely on traditional reference points such as time, location, and attributable person(s) responsible.
For the cyber market specifically, issues arise when cyber heads of cover are not clearly defined, and when it is unclear if cover has been granted under write-backs such as for cyber terrorism, or when no war exclusion has been specifically inserted.
However, for the wider property and casualty re/insurance market, Capsicum Re argues that the issues are more fundamental.
The very question of attribution (e.g. to independent hackers or state actors) is arguably indicative of a general lack of understanding of the rapidly changing cyber exposures under traditional lines of business, the broker proposes.
“Cyber is a peril, not just a class of business,” said Ian Newman, Global Head of Cyber at Capsicum Re. “The risk landscape has evolved, and the historically well-defined line between excluded acts of war and otherwise covered perils has become blurred in the context of cyber.”
“As a market it is our duty to redefine the boundaries to ensure that we are able to continue to provide certainty of cover to our clients,” he added.
If re/insurers opt to refuse or reduce cover for acts of war, it could be perilous for the emerging cyber market, the report suggests, as the effect would be much the same as limiting cover for attacks perpetrated by organised crime syndicates.
Nonetheless, in the absence of a dedicated cyber war market, and until markets such as Lloyd’s and the large European reinsurers are prepared to accept cyber war risk onto their balance sheets, Capsicum Re believes some form of cyber war exclusion will always be necessary.
In this context, the broker believes that reinsurers have an opportunity to improve the market through advancements in policy language, which will ultimately ensure greater certainty of cover.
“We believe it is the reinsurance market that now has the opportunity to drive advancements and instill good and appropriate market practice, not just in relation to the issues of war, but in all aspects associated with the preeminent cyber threat,” the report concluded.