A report from The Geneva Association emphasizes that safeguarding society against an unprecedented cyberattack necessitates more than just insurance. The report, Cyber Risk Accumulation: Fully tackling the insurability challenge highlights the escalating cyber risks attributed to growing geopolitical tensions and the widespread use of digital technologies. Global cyberattacks surged by 38% in 2022 compared to the previous year.
Despite the rapid growth of the dedicated cyber insurance market, a substantial protection gap persists, particularly in the face of a potential extreme cyber incident. This could impact multiple large segments of the global economy. The fear of threats poses a significant challenge for reinsurers. For one thing, a major incident could lead to substantial loss accumulation in their underwriting portfolios.
The Geneva Association’s report delves into the barriers hindering the insurability of peak cyber risks. It concludes that standard statistical approaches are inadequate for modeling factors driving extreme cyber losses. The extent of cyber damage relies heavily on the complex interplay between the incentives and resources of attackers and victims. These defy easy calibration and quantification.
“Catastrophic Events”
The report recommends fostering knowledge-sharing partnerships among reinsurers, government security agencies, critical infrastructure providers, and technology companies. The goal is to enhance understanding of cyber threats, enabling the expansion of insurance protection. However, the report acknowledges that there are limits to the financial loss the re/insurance industry can reasonably absorb.
Jad Ariss, Managing Director of The Geneva Association, emphasizes the need for proactive preparation. “If the COVID-19 pandemic taught risk managers anything, it is that we must prepare for catastrophic events; we cannot rely solely on response mechanisms after the fact,” he said.
The report suggests establishing government ‘backstops’ for major cyber incidents to incentivize reinsurers to extend coverage and increase their risk-absorbing capacity. Darren Pain, Director Cyber at The Geneva Association, underscores the importance of forging partnerships among a range of stakeholders. From reinsurers, technology providers, governments, and others to create a larger, more sustainable cyber insurance market. The report emphasizes that while better cyber risk models are essential, they alone will not suffice in closing the significant cyber protection gap. “Our report urges the right partnerships be put in place among re/insurers, technology providers, governments and others to help create a larger, more sustainable cyber insurance market,” Pain said.
Full Report: Cyber Risk Accumulation: Fully tackling the insurability challenge
Other News: A Growing Challenge for Cyber Insurance Providers: Managing Client Expectations(Opens in a new browser tab)