Written by Mark Wood, Tokra Consulting Limited on 6th October 2015.
On Tuesday 29th September, AirSP was lucky enough to host a presentation from Anna Bender, Associate Director in the Insurance Division of Fitch Ratings, London, which both provided insight and provoked debate on the topic of cyber risk and insurers’ exposure to it.
With the event taking place at The Broker’s Wine Bar in Leadenhall Market, it is fair to say that – as with other such events held by AirSP – the approach taken was much more “user friendly” than some others in the market as the talk was not simply a lecture on Fitch’s views. Anna involved everyone present in a discussion about the issue of cyber risk and how it needs to be considered and addressed by people, organisations, the insurance and reinsurance market and government. These discussions did, of course, continue when everyone who stayed on moved down to the bar afterwards!
The presentation was based on Fitch’s report “The rise of cyber insurance” and covered the following areas:
A growth opportunity: the role of cyber insurance, the impact of public and private awareness and of government legislation;
The risks: credit risks (from a rating perspective), high aggregation risk, limited reinsurance availability, expertise requirements, modelling capabilities and issues and insurers becoming targets.
From my perspective as a member of AirSP, I believe the key points that arose from the discussion revolve around the two key questions that Anna asked us:
Do you think cyber insurance is mainly…
… a major opportunity for (re)insurance companies [modelling this type of risk will improve and give clients and insurers more confidence in writing this type of risk profitably.]
… a substantial risk to (re)insurers’ reputation and balance sheet [Loss/data statistics and general understanding of the particular risks remain limited, which makes cyber risks almost impossible to price. Underwriting this type of risk is an accident waiting to happen. There is no good coming out of this for the insurance industry.]
More people in the room seemed to react more to the “risk” element than any “opportunity”, although from an AirSP member’s perspective I guess both could be true.
What sparked debate amongst those present was how the nature of cyber risk has evolved, such that insurers and reinsurers (as well as insureds) did not necessarily know exactly what they expected policies to cover or to exclude! As a result, loose wordings had resulted in some unexpected consequences, although some would say there’s nothing new in that.
2. Who do you think should lead in promoting cyber protection /consultation / education and best practice?
Governments [because it would ensure that rules are applied (and enforced) consistently across industries.]
Insurance companies [because they have a direct financial interest in getting it right. It can also create an incentive to insureds to improve their cyber resilience in order to obtain a lower premium.]
Brokers [because they know best what their clients need. This would ensure a more tailor-made approach to cyber protection.]
Cyber Security / IT Specialists [because they have the most comprehensive knowledge of cyber threats.]
Having spoken to Anna on the night and subsequently, there appears to be a varied opinion as to the answer to this question depending upon the audience. With ours, whilst there were people voting for all of the options, the majority were very much in favour of option D. Was that just a natural response from the members present that, as specialist service providers, simply viewed the issue from that perspective? From the lively discussion, I don’t believe that to be the case but it would be interesting to hear the reasoning of other audiences that had reached different conclusions.
I would just like to conclude by thanking those responsible for arranging these talks for us and, to any of you who have yet to attend such events, a recommendation to do so – along with a chance to network with others in the market, you can obtain invaluable insight about and get to discuss some very interesting topics.