Despite having responded to increasingly widespread and sophisticated threats with expanded offerings and premium volumes, the cyber re/insurance market’s own growth and effectiveness should not be taken for granted, warns leading think tank the Geneva Association.
Anna Maria D’Hulster, Secretary General of the GA, acknowledges re/insurers’ historical experience with expanding the boundaries of insurability but underscores the unique dangers and challenges posed by cyber threat, particularly the issue of accumulation risk.
“Cyber risks are taking us into uncharted territory,” says D’Hulster. “Both exposures and threats have distinct characteristics, bringing unprecedented challenges.”
In its study ‘Advancing Accumulation Risk Management in Cyber Insurance’, GA identifies three prerequisites to ensure sustainability of cyber insurance.
First, customers and insurers must facilitate resilience at the source of risk. Second, insurers need to make an acceptable return on capital. And third, available capital must absorb shocks from accumulation risks.
Accumulation risk can occur when a single large event or a series of consecutive events make affirmative cyber insurance unprofitable, or if insurers and reinsurers underestimate cyber exposures, which could result in unplanned shocks from a major event.
In response to this, re/insurers have developed several approaches including the development of data analytics that analyse the characteristics of cyber risk, as well as data protocols that combine company information with digital risk indicators.
“Cyber risk has distinct characteristics. Exposure bases are hard to define and measure. Historical claims data are scarce and not good predictors,” comments Daniel Hofmann, Senior Advisor Insurance Economics at the GA and the study’s primary author.
“Threats are constantly evolving, can spread widely and rapidly, and a series of consecutive large events is plausible. Moreover, a high degree of interconnectivity may result in potentially boundless impacts.”
