London-based marketplace for insurance and reinsurance, Lloyd’s, has published a systemic risk scenario that shows the global economy is exposed to losses of $3.5 trillion over a five-year period from a cyber attack on a major financial services payments.
The risk scenario models the global economic impact of a hypothetical but plausible cyber attack that could lead to widespread disruption to global business.
Lloyd’s produced the risk scenario in partnership with the Cambridge Centre for Risk Studies. The research explores nine hypothetical systemic risk scenarios to reveal the potential economic impact of each scenario across 107 countries and at three levels of severity – major, severe, and extreme.
The United States, China and Japan are the three countries that experience the highest five-year economic loss from the scenario. With expected losses of $1.1 trillion in the US, followed by $470 billion in China, and $200 billion in Japan. The recovery time for individual countries or regions depends on the structure of their economy, exposure levels and resilience, stated Lloyd’s.
Using Gross Domestic Product (GDP) as its central measurement, Lloyd’s and Cambridge calculates that the global economic loss of a global cyber-attack on a major financial services payment system would be $3.5 trillion over a five-year period (the weighted average across the three severities modelled).
The economic loss would range from $2.2 trillion in the lowest severity scenario up to $16 trillion in the most extreme.
The study highlights how cyber attacks continue to threaten businesses and governments, with year-on-year costs around maintenance, prevention, and response to attacks on the rise. It’s a risk with the potential to affect society severely, as it is both a complex and connected risk impacting areas such as supply chains and geopolitics.
However, cyber insurance is a growing market estimated at just over $9 billion in gross written premiums in 2022, and is expected to hit between $13-25 billion by 2025. Although, this still represents a small portion of the potential economic losses that businesses and society face.
Bruce Carnegie-Brown, Lloyd’s Chairman, commented, “We are committed to building resilience around systemic risk and the risk scenario released today highlights the important role of insurance in supporting and protecting customers against the potential threat cyber poses to businesses and society.
“The global interconnectedness of cyber means it is too substantial a risk for one sector to face alone and therefore we must continue to share knowledge, expertise and innovative ideas across government, industry and the insurance market to ensure we build society’s resilience against the potential scale of this risk.”
