The Geneva Association has released a report warning that the increasing frequency of cyberattacks, coupled with geopolitical tensions, is exposing significant gaps in cyber insurance coverage.
The report reveals a 38% surge in cyberattacks globally in 2022 compared to the previous year, underscoring the need for innovative solutions to address the evolving nature of cyber threats.
The dedicated cyber insurance market has seen substantial growth, but a considerable protection gap remains, particularly in the face of unprecedented and extreme cyber incidents affecting multiple sectors of the global economy, the report noted.
Reinsurers are wary of assuming these risks due to the potential for widespread claims across various lines of business, leading to substantial losses in their underwriting portfolios.
The Geneva Association’s report, titled “Cyber Risk Accumulation: Fully tackling the insurability challenge,” identifies obstacles to insuring peak cyber risks.
Notably, it emphasises that standard statistical approaches may not effectively model factors driving extreme cyber losses. The interplay between attackers and victims, along with their incentives and resources, is complex and challenging to quantify.
To address these challenges, the report recommends fostering knowledge-sharing partnerships among re/insurers, government security agencies, critical infrastructure providers, and technology companies.
Collaborative efforts could enhance understanding of cyber threats and enable the insurance industry to expand its coverage.
The report also suggests the possibility of a government ‘backstop’ for major cyber incidents to incentivise re/insurers to extend coverage and increase their risk-absorbing capacity.
“If the COVID-19 pandemic taught risk managers anything, it is that we must prepare for catastrophic events; we cannot rely solely on response mechanisms after the fact. That is why re/insurers, governments and others need to establish the right cyber partnerships now – not only so insurers are positioned to offer more cyber risk protection, but so there are viable financial and operational solutions in place should a widespread, devastating cyberattack actually occur,” Jad Ariss, Managing Director of The Geneva Association, said.
“The many unknowns around cyber risk are fostering a massive cyber protection gap. With better data and understanding of cyber threats and their loss accumulation potential, insurance can help narrow that gap. But better cyber risk models alone will not be enough. Our report urges the right partnerships be put in place among re/insurers, technology providers, governments and others to help create a larger, more sustainable cyber insurance market,” Darren Pain, Director Cyber at The Geneva Association and author of the report, said.
