Growing cyber threats to the U.S. power grid have led specialty re/insurers in the energy/utility sector to explore avenues to leverage their industry knowledge into areas of profitable – but conservative and controlled – growth in cyber, according to A.M. Best.
For the utility sector the threat of cyber attacks has become an increasingly heightened risk, A.M. Best explained “an attack such as the one that turned off the lights in Ukraine in December 2015 could bring vital US sectors to their knees. In that incident, numerous substations were switched off, resulting in power outages that impacted nearly a quarter of million customers.
“The US power grid is a complex, interconnected network of electrical generation, transmission, distribution, and communication technologies that can be damaged by natural as well as malicious events such as cyber or physical attacks.”
Although cover for cyber exposures has often been included in traditional and liability re/insurance, A.M. Best notes that this cover has often lacked clear definitions and particularly in relation to property damage, there’s potential for claims to be much larger-than-expected.
Thus as the specialty sector gains better understanding and sophistication in mitigating and covering cyber threats to power grids, the level and scope of cover is likely to increase and gain in clarity, opening up greater opportunities for re/insurers in the sector.
A.M. Best said several of the specialty insurers that the agency rates “have teamed up with insurance industry leaders (AEGIS and Aon, or Energy Insurance Mutual and the Beazley Group) to develop cyber-specific products, or have teamed up with peer groups (e.g., Energy Insurance Mutual and Nuclear Electric Insurance Limited), or have developed cyber products for members on their own, providing customized and energy industry-specific cyber security coverage ranging from USD 15 million to USD 50 million.”
However, the rating agency said that due to the rapidly evolving nature of cyber threat, there is no way to predict how this threat will manifest itself over the coming years.
As a result, there is no way to determine how these adverse impacts will affect specialty companies’ premium growth.
In the past, the variability of premium growth in the energy/utility market has resulted in the termination or addition of lines of business by specialty insurers, particularly among single-parent captive insurers.
Recent years have brought growing awareness to the vulnerability of the energy/utility market, and for both the energy sector’s executives and specialist re/insurers, mitigation and coverage of cyber threat in the sector will continue to be a key area for innovation and expansion, however, A.M. Best believes that past performance will not be indicative of future performance – how the evolution of threat versus cover plays out remains to be seen.
