Cyber ILWs: When Speed Really Means Something


Industry loss warranties have become an increasingly important part of the ILS market in recent years. Tom Johansmeyer of PCS, Verisk Insurance Solutions, takes a look at ILWs.

johansmeyer-thomas-portrait-1-1-1.jpgThe tradeoffs between basis risk and settlement speed have been debated for years. One thing is certain around the global reinsurance market: everyone wants both, but of course that isn’t possible.

Industry loss warranties (ILWs) may involve the risk of over- or underpayment when triggered, but they’re designed to address the cash flow management needs of cedants. When you apply the ILW concept to other lines of business, the benefits of speed can become more pronounced than they are in the property-catastrophe space. Cyber, in particular, provides a unique opportunity for you to take advantage of this benefit.

The easiest way to see the difference between ILWs and traditional reinsurance settlement speed in cyber is to look at an example. Let’s compare $10 million in cover.

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