The potential for cyber risk accumulation is a significant concern across the reinsurance industry. With cyber no longer being a nascent line, it’s imperative that (re)insurers take steps to understand and manage their cyber risk accumulation effectively. This means accessing the appropriate data and utilizing it in the right way to achieve company targets and ensure portfolio resilience.
This blog explores strategies to manage cyber accumulation — these include understanding the cyber threat landscape, identifying risks, and diversifying cyber portfolios using cyber risk modeling tools.
The unique challenges of cyber risk accumulation
The interconnectedness of the modern world has increased reliance on Single Points of Failure (SPoFs), raising the risk of cyber accumulation. Unlike some lines of business, cyber is a risk that cannot be completely avoided, only managed. Cyber is a man-made risk, but cyber events may not always be caused by malicious cyber attacks — they can also occur as a result of human error. This was seen with the CrowdStrike outage, which affected 8.5 million devices and interrupted business operations globally.
It’s important, then, that cyber (re)insurers go further to manage their own cyber risk accumulation within their portfolios. This includes increasing awareness of the cyber threat landscape, understanding loss drivers across multiple lines of business, and utilizing cyber risk quantification tools.
As more cyber attacks occur, we can learn from them, allowing cyber models to become more sophisticated. However, the most effective tools can also leverage data and analytics to provide a more informed view of risk, as well as actionable insights.
Navigating the cyber threat landscape
The cyber threat landscape is a critical factor in understanding how to manage cyber risk accumulation. Threats are constantly evolving, with updated techniques and artificial intelligence being used in cyber attack tactics, such as ransomware attacks and phishing attempts.
There are more opportunities for cyber threat actors to strategically attack larger organizations and affect industries, as seen with the Change Healthcare cyber attack. Vulnerable industries in particular will be targeted by cyber threat actors using tactics like double extortion.
The insurance industry should also be monitoring nation-state cyber threat actors. These cyber criminals often have more financial backing to cause real damage to their targets, which could be a SPoF — leading to more widespread disruption.
How to manage cyber risk accumulation
Understanding the concentration of SPoFs in a portfolio is key to managing cyber risk accumulation, both in terms of risk accumulation and loss aggregation. Diversification within portfolios can ensure risk is not accumulated, minimizing the impact of a potential SPoF attack.
A dedicated cyber risk tool that identifies SPoFs in a portfolio can help users to:
- Manage cyber accumulations
- Understand digital supply chain risk
- Identify which technologies are driving losses
A model should utilize multiple sources of data via a variety of collection methods. This will most effectively provide the information needed to make informed decisions to manage risk within a portfolio. The right tool will be able to highlight which technologies could cause an accumulation event as well as provide a holistic view of the kind of risk these accumulation events present to a company. This will ensure that (re)insurers can improve portfolio management with a focused cyber risk solution, allowing them to more effectively manage their risk accumulation.
Optimizing portfolio risk with marginal risk
A marginal risk portfolio management approach can help insurers better manage their cyber risk accumulation. By quantifying the incremental risk of adding new policies to their portfolio at the point of underwriting, insurers can optimize capital allocation and pricing strategies. Insurers can proactively balance their portfolios, reduce exposure to SPoFs, and enhance overall risk management by concentrating on the marginal impact of each additional policy. An integrated solution can streamline the process, enabling insurers to execute portfolio management for cyber underwriting efficiently.
If you’re looking for a capability that measures marginal risk and allows users to manage their cyber risk accumulation in a streamlined way, find out more about CyberCube’s Marginal Risk.
Proactively prepare for the next cyber event
As we look to the future, cyber risk accumulation presents both challenges and opportunities for the insurance industry. The threat landscape is only becoming more complex, so insurers must adopt forward-thinking strategies to enhance their understanding of SPoFs and stay ahead of these risks.
To effectively manage their cyber risk accumulation, insurers need to be proactive rather than reactive. This means leveraging a tailored cyber risk modeling tool that is innovative, purpose-built and efficient. The chosen data partner should also be equipped to handle the next major cyber event.
At CyberCube, we’re committed to quantifying cyber risk for the insurance industry. SPoF Intelligence is our tool dedicated to helping insurers understand the concentrations of SPoFs and manage their risk accumulation. SPoF Intelligence provides comprehensive visibility into the technology dependency data central to CyberCube's model, so insurers can take proactive measures and manage their risk effectively.
