Insurers are finding themselves squeezed between regulators and reinsurers who both want the issue of so-called ‘silent cyber’ risk to be tackled. The potential cost implications of failing to address it are frightening. At present, global standalone cyber premiums are estimated to be in the region of $5.5 billion, but the connected exposures and premiums at risk from silent cyber across all Property and Casualty (P&C) lines is higher by an order of magnitude. This explains the nervousness among market regulators and reinsurers.
Traditional insurance products were developed before cyber risk became a meaningful concern for (re)insurers. As conventional insurance policies were not designed to include cyber as a potential risk, they did not specifically reference digital perils (either proactively incorporating or excluding) as these were not actively considered at the time of underwriting. Recently developed insurance products are more explicit as to whether cyber risk is covered.
The growing pressure on insurers to identity non-affirmative cyber risk hidden within traditional non-cyber insurance products must lead to changes in the way the industry’s cyber modelling tools are constructed. Cyber models need to expand their scope in order to cover a much broader range of insurance lines if non-affirmative cyber risks are to be identified and analysed effectively. Traditionally, silent cyber models have been restricted to property lines of business.
The lack of high-quality, detailed exposure data for established lines of business is a brake on progress. Models need to be able to handle aggregated data and, in many cases, incomplete information is being used to provide estimates. This is clearly not helpful for the industry. Insurers will face challenges if they are held responsible for cyber-related claims as a result of ambiguous policy wordings in standard commercial products, such as business interruption covers.
These topics have been identified in a new CyberCube report, "Accurately Assessing Silent Exposure: A Step Towards Strengthening the Cyber Market’s Development". Yvette Essen, Head of Content & Communications at CyberCube, has interviewed me about some of the key trends highlighted in the report. Her video can be found here.
