As businesses, both large and small, throughout all sectors of industry, become more and more reliant on technology to improve service efficiencies and functionalities, cyber risk has become one of the most pressing public topics addressed in corporate boardrooms and by governments across the globe. The corresponding awareness of a business’s susceptibility to a cyber-attack has grown along with a spate of high-profile attacks. Consequently, cyber risk is now an embedded feature of the global risk landscape, not only as a privacy/network liability, which is where much of the publicity has arisen, but also as a peril affecting traditional insurance lines. Therefore, preventative and post-event remediation are gaining importance as shareholders, regulators and rating agencies are increasingly focused on enterprise risk management activities for cyber risks.
Posts Tagged ‘CBI’
The UK Government has recognized cyber-attacks to be one of the most significant risks facing the country. The costs to businesses are rising as hackers become more focused and persistent in their attacks. Several attempts have been made to quantify the economic cost of cyber crime on UK businesses. While there are a wide range of estimates, figures consistently range in the billions of pounds.
Cyber insurance has grown out of recognition that cyber-crime and data privacy are among the most concerning risks facing organizations today. With the increasing severity and frequency of cyber-attacks and data breaches worldwide, the demand for cyber-specific insurance is growing. Cyber-related risk to critical infrastructure and the overlap with cyber-terrorism are also issues that have come to the forefront.
Here we review recent GC Capital Ideas stories on space risk and related insurance solutions.
Recent Sun Flare Event Is a Reminder of Solar Weather Hazards: On February 24, 2014 the sun once again provided a reminder of the potential hazards of solar weather events. A large solar flare was reported by the National Aeronautics and Space Administration (NASA) measuring at X4.9 (or according to the National Weather Service’s Space Prediction Center, an R3 (strong) Solar Flare Radio Blackout) that could cause severe disruption to satellites and technology on Earth.
Space (Re)insurance Solutions: Weather Risk: Space weather risks are difficult to quantify due to the lack of understanding and clarity about the likely duration and consequences of extreme events. However, it is clear the interconnected global economy that exists today is vulnerable to the risks posed by space weather. Indeed, extreme solar weather events have the potential to create systemic risk by triggering cascading failures across industries and regions.
Space (Re)insurance Solutions: Debris Risk: Risks emanating from space pose a serious and real threat to the (re)insurance sector. Space debris and satellite collisions have the potential to cause losses in the millions or even billions of dollars, while extreme space weather has the potential to cause systemic failures across the globe. Although both risks are difficult to quantify given the uncertainty involved, (re)insurers have a responsibility to promote risk mitigating measures as the potential costs involved are considerable.
Solar Weather Activity: Solar weather is a space-related risk that has the potential to cause huge disruption to infrastructure and businesses around the world. Geomagnetic storm activity is not a new development but technological advancements and an increasingly interconnected global economy have resulted in increased vulnerability. Although extreme solar storms are relatively rare, there have been several notable recent events that have had a damaging impact on Earth. More are certain to occur in the future.
Space Debris Risk: Part I, Orbital Regions: The most serious threat to high-value satellites and space infrastructures in the Earth’s orbit today is the risk of collision with other satellites or space debris. As more satellites are sent into the Earth’s orbit to provide services and technology we now take for granted, including global communications and broadcasting, air traffic control, weather forecasting and disaster management, the area is becoming increasingly cluttered with satellites (operational and defunct) and other fragments, enhancing the risk of collision. Although deorbiting strategies are in place for some modern satellites, tens of thousands of objects still circulate the planet at extremely high speeds.
Space Debris Risk: Part II, Collision Risk: Space debris poses a serious risk to operational satellites, particularly in the low earth orbit (LEO) and geosynchronous orbit (GEO). Indeed, debris amounts are increasing as objects continue to collide with one another, producing more fragments. According to the U.S. Strategic Command’s Space Surveillance Network, more than 20,000 objects above ten centimeters in size are currently orbiting Earth. Of these, only some 1,000 are active satellites. For items measuring between one and ten centimeters, around 500,000 particles are thought to be orbiting Earth. Estimates suggest tens of millions of other particles smaller than one centimeter are circulating the planet. All this material is traveling at several kilometers per second, sufficient velocity to cause significant damage to operational satellites.
On Monday, February 24, 2014, the sun once again provided a reminder of the potential hazards of solar weather events. A large solar flare was reported by the National Aeronautics and Space Administration (NASA) measuring at X4.9 (1) (or according to the National Weather Service’s Space Prediction Center, an R3 (strong) Solar Flare Radio Blackout) (2) that could cause severe disruption to satellites and technology on Earth.
As Guy Carpenter launches its new Cyber Solutions Specialty Practice, we review recent GC Capital Ideas stories on cyber.
Here we review recent GC Capital Ideas stories that have covered issues related to supply chain management.
Emerging Risks: Managing the Unknown: Having examined the three emerging risks of cyber, climate change and space in detail, it is clear they present serious threats to businesses and (re)insurers. Not only will the fallout from these risks result in losses we can currently anticipate and predict (such as increased property damage and liability vulnerability), but they also have the potential to trigger costly secondary impacts such as a breakdown in supply chains, reputational damage, disrupted power supplies and possibly others that are more difficult to foresee.
Supply Chain Risk Management and (Re)insurance Solutions: Technological advances have resulted in business being conducted all over the world in an instantaneous manner, meaning supply chain failures can significantly impact companies’ revenue, credibility and reputation. Companies are therefore now far more exposed to external risks than ever before. This has raised (re)insurers’ concerns over the ability of the market to understand the risks that are being underwritten and the viability of offering business interruption/contingent business interruption cover. Indeed, some (re)insurers have taken the view that risk management strategies at the company level need to be improved before coverage can be offered.
Causes of Supply Chain Disruption: The Business Continuity Institute’s 2012 Supply Chain Resilience Survey estimates that outsource service provider failure represents one of the most significant causes of supply chain disruption, only lagging behind adverse weather and technology. The particular danger represented by the supplier or service provider, especially if it involves an aspect of critical infrastructure, is that the failure is likely to cut across multiple industries and geographies. For example, the disruption caused by a component part of technology used by a power generator does not just shut the utility down - all commercial and residential operations grind to halt.
Cyber Risk and its Impact on Supply Chains: Cyber risks are not isolated and are usually connected to other risks. Many companies that are exposed to cyber risks are, for example, also exposed in turn to risks to their supply chain. Due to technological innovation and advances, many parts of a company’s or industry’s supply chain have become interconnected and automated. Technology is indeed a critical enabler of a supply chain’s operations. Therefore a cyber attack has the potential to put an entire company’s supply chain at risk. Cyber security and supply chain risk management must therefore be considered in conjunction with one another.
Contingent Business Interruption: Life Support for Industry: Contingent business interruption (CBI) is a generic term for extensions to the standard cover that provide for reduction in revenue as a result of damage at locations other than the insured’s own premises, whether it be suppliers or customers. In some cases insurers are providing cover on a “non-damage” basis, which protects against insolvency or political risk among an array of contingencies that might disturb the supply chain.
Having examined the three emerging risks of cyber, climate change and space in detail, it is clear they present serious threats to businesses and (re)insurers. Not only will the fallout from these risks result in losses we can currently anticipate and predict (such as increased property damage and liability vulnerability), but they also have the potential to trigger costly secondary impacts such as a breakdown in supply chains, reputational damage, disrupted power supplies and possibly others that are more difficult to foresee.
Space weather risks are difficult to quantify due to the lack of understanding and clarity about the likely duration and consequences of extreme events. However, it is clear the interconnected global economy that exists today is vulnerable to the risks posed by space weather. Indeed, extreme solar weather events have the potential to create systemic risk by triggering cascading failures across industries and regions.
Although there has been a significant increase in both economic and insured losses from natural catastrophes in recent decades, it is important to put these numbers in context. With the exception of coastal flood, inland flood and drought, the wholesale attribution of rising financial losses to an increase in hazard frequency can be misleading. Statements concerning the influence of global warming on loss trends would be better served if normalized by factors such as inflation, (per capita) gross domestic product, total insured value, population density and annualized property value. Indeed, the IPCC agrees that ignoring these factors leaves an upward trend in losses for purely economic reasons, notwithstanding any behavior in the peril. As an example, the recent “trend” in hurricane losses for the coastal United States loses clarity when normalized by inflation and population density. (1)