Lockton Re, the global reinsurance arm of the privately held independent insurance broker, has highlighted how a large cyber catastrophe event could have its benefits by pushing the market to work collaboratively and drive innovation and product development.
In a new analysis, “A Kaleidoscope of Possibilities: Preparing for Ivan Wiper,” the reinsurance broker created a hypothetical self-propagating destructive malware (named Ivan Wiper) and assumed a midpoint view of its impact globally.
“We wanted to explore the potential aftermath of a major cyber catastrophe, as this is an area which has been overlooked in discussions on systemic risk,” said Oliver Brew, co-author of the report, and London Cyber Practice Leader, Lockton Re.
Brew explains that Lockton Re spoke to experts across the industry to consider both understanding and impact, and these views of different experts in the value chain were key to its paper.
The report notes that there’s real benefits to be gained from the market working collaboratively on extreme events such as a large cyber catastrophe, but warns that there will be potentially major bottlenecks in both claims handling and processing.
Additionally, finds the report, some insurers and reinsurers will ultimately withdraw from the cyber risk market, though there is strong appetite by experienced carriers to recapitalise and take advantage of dramatically improved rating conditions.
Matthew Silley, co-author of the report, and Cyber Broker, Lockton Re, said, “The very purpose of our industry is to understand and quantify risk. The management and mitigation of risk has built our industry over centuries, building societal resilience with it. Cyber catastrophe risk is a complex but fundamental pillar of the broader market.
“The insurance industry has built its reputation supporting recovery after major events, learning, and adapting. Notwithstanding that a major cyber catastrophe has yet to materialise, the cyber insurance industry has been proactive in addressing the potential for significant systemic risks.”
Lockton Re highlights the impact of past large incidents like Hurricane Andrew, the Tohoku Earthquake, and the Terrorist attacks on the World Trade Center in 2001, noting that from an insurance perspective, events like this can reshape the industry and drive movements in risk appetite and also accelerate specialist capacity and expertise.
“For the (re)insurance industry itself, our view is that the most likely effect of Ivan Wiper will be the acceleration of a cyber catastrophe market with new product innovation, and a growing consensus around common cyber war and critical infrastructure exclusions,” Brew explained.
Silley concluded, “It’s important to remember that these events are more challenging for those companies who either cannot afford, or choose not to buy insurance, so the impact could be significant. They will struggle to access specialist incident response services unless they have inhouse or retained access. The goal of the paper is to raise questions and challenges, rather than fear or anxiety. By considering specific issues for each stakeholder, the conversation can progress.”
