Swiss Re CEO warns on true risk of cyber cover
While many re/insurers see cyber risk as an opportunity to grow in the current soft market, Swiss Re’s CEO Christian Mumenthaler suggested that the excitement may be inappropriate and that governments need to prepare for extreme events.
The total written premium of the cyber market globally has recently been estimated at $2.5 billion, but it is growing fast. Allianz believes that the market will increase to $20 billion by 2025.
“I am very sceptical of today’s cyber policies,” Mumenthaler told Monte Carlo Today. “If you cover everything related to cyber, you are taking a huge aggregation risk, and this risk is very significant.”
In an increasingly digital world, with cars and homes connecting through the internet, the risk of a large cyber attack hitting the insurance industry may be growing.
A massive ransomware worm dubbed WannaCry hit several organisations such as the UK’s National Health Service and Spain’s telecoms firm Telefonica in 2017.
In June, many organisations in Europe and the US were crippled by a ransomware attack known as Petya.
“What we have seen so far is not a good basis on which to predict future developments,” Mumenthaler warned.
“The deeper you go into the subject, talking to experts, governments and the community, the more you realise the significance of the threat cyber represents. Even with good security measures in place, if everyone moves data into the cloud and uses the same systems, we as a society are making ourselves inherently more vulnerable.”
Some experts believe that hackers may be able to ‘tip over’ the internet in less than three years.
“The best cyber experts say that big events can happen at any time and true full defence is not possible. It’s similar to the nuclear situation, where one hopes that no-one will attack, but not because they can’t do it.
“In a bleak scenario like that you wouldn’t want to have large aggregation risk,” Mumenthaler said.
In order to reduce the potential risk of a big event, insurers may have to take a cautious approach to cyber demand. Mumenthaler suggested that underwriters can create products for certain types of risk, for example when a certain group of companies is concerned, or for sub-risks where one can exclude aggregation risk across the board.
Governments may need to work with the private sector to determine how to handle the largest cyber risk in a similar way to pandemics, terrorism, or nuclear risks.
“We need governments for extreme events,” Mumenthaler said. “If we have the breakdown of a cloud service provider which will affect a large number of businesses, I struggle to see how the private sector will be able to cover it.”
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