Swiss Re has launched its new re/insurance think tank, the Swiss Re Institute, with the release of a report that investigates the growing sphere of cyber risk, examining constraints in risk assessment as well as potential new models for risk analytics and coverage.
Opportunities for reinsurance are expanding in the fast-developing cyber line of business; cyber risk concerns rose to 2nd most feared threat of loss in the U.S. and Europe, and 3rd globally, according to an Allianz industry survey.
It’s common knowledge that cyber risk has become more dangerous than ever, is set to continue to grow, and that businesses, governments, and re/insurers have to take proactive steps to self-protect, but despite this knowledge, the scale of cover for cyber has still been relatively modest.
Many businesses have not yet taken sufficient steps to match their protection to the scale of risk, although recent cyber attacks have shown that the costs of a cyber breach can escalate well beyond data fallout or loss, although “Initiatives to boost cyber resilience are underway. A dedicated cyber insurance market is developing rapidly, but so far the scope of cover is modest relative to potential exposure,” said Swiss Re.
As firms increasingly recognise their high-level cyber risk-exposure and take steps to boost cyber resilience, reinsurers stand to progress in this fast-growing line of business through collaboration with firms and industry players as they develop products and processes.
Swiss Re Chief Economist Kurt Karl, commented; “Many firms are looking to transfer cyber risks to third parties better-placed to absorb them.
“A dedicated cyber insurance market is developing, and an increasing number of insurers are looking to write more business in this specialty line.”
“Even if full probabilistic models are still in their infancy, the experience of other perils offers hope that better, richer cyber risk models will eventually emerge as understanding of the fundamental risk drivers develops and more data about cyber losses become available,” said Swiss Re.
The re/insurance think tank said the scale of loss for some cyber risks, such as those from extreme catastrophic loss events, may be “uninsurable,” but suggested that a solution may come from a “government-sponsored back-stop.”
Swiss Re’s Karl, said; “Regulation could be a catalyst for change with legislation coming into force in many jurisdictions requiring firms to build enhanced data protection safeguards.”
Karl added that firms also needed to take steps for self-protection and “invest more in cyber security architecture to develop robust pre and post-loss risk management capabilities.”
The Swiss Re report said product and process innovations, Big Data, and smart analytics, are being developed to help foster improved cyber insurance and reinsurance solutions.
Cyber risk models are already underway, as insurers and risk analytics vendors experiment with deterministic scenario analyses and probabilistic models.
And while the transient nature of cyber risks has often constrained the development of insurance solutions, according to Swiss Re Institute, the experience of risk-management from other perils such as natural catastrophes, offers hope that “models will continually improve as understanding of the fundamental risk drivers develops and more data about cyber losses becomes available.”
“The very fast changing technological environment and the lack of historical claims data from which to extrapolate information about future losses is a challenge. Insurers and their clients are nevertheless wrestling with different cyber risk modelling approaches,” said Swiss Re.