July 18th, 2016

The Challenge Of Cyber Exposure

Posted at 1:00 AM ET

Here we review GC Capital Ideas posts on the challenge the peril of cyber risk poses for (re)insurers and rating agencies and how the management of this risk is evolving.

Cyber Gaps in Traditional Insurance Products/Standalone Insurance Products: Although the insurance market has developed a dedicated product line that addresses the initial risks faced by companies, such as data breach and business interruption due to network failure, traditional insurance products in their design have not historically contemplated the exposure to protect against cyber risks. Companies can purchase cyber specific cover in the form of extensions to traditional policies or as standalone cyber policies.

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Cyber Risks: Aggregation: Businesses and (re)insurers should be concerned by risk aggregation, given the possibility of single attacks leading to losses across a large number of firms, which can create counter-party risk for the insured and potential failure for the insurer. At the moment, a large systemic event has not materialized, but that does not mean that the risk is not present.

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Cyber Risk Management: Cyber risk is already an embedded feature of the global risk landscape, not only as a privacy/network liability, but also as a peril affecting traditional insurance lines. As such, insurance has the potential to greatly enhance cyber risk management and resilience for a wide range of organizations and individuals who are exposed to its impacts. Nevertheless, the likelihood and impact of severe events remain subject to much uncertainty and the pace of insurance innovation should be linked to the rate at which this uncertainty can be reduced.

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