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15 December 2015 Insurance

A new age of risk

Cyber risk is one of the most pressing public topics being addressed as a strategic priority in corporate boardrooms and in governments across the globe. The growing concern with cyber risk is driven by the increased global reliance on technology and the rising number of cyber attacks. As industrial control systems for critical infrastructure migrate to cyber, and as we become increasingly dependent on e-commerce and cloud computing, the susceptibility to cyber risk increases exponentially.

In its broadest form, cyber risk is synonymous with information technology (IT) risk. According to the ISACA Risk IT Framework Excerpt, 2009 it is “The business risk associated with the use, ownership, operation involvement, influence and adoption of IT within an enterprise.”

Cyber attacks represent a present and growing danger that threatens businesses irrespective of size and sector.

Risk aggregation is another concern for businesses, insurers and reinsurers, given the possibility of single attacks leading to losses across a large number of firms. The nature of cyber risk makes it possible for re/insurers to suffer losses from a vast number of insureds spread across different geographies as a result of a single event. A large systemic risk has not yet materialised, but this does not mean the risk is not present.

Physical losses are a growing concern, both in terms of severity and frequency, given the interconnectedness of cyber space and the physical world. One example of this new category of risk can be seen in the way that industrial control systems operate in the energy sector. These new generation control systems expose the sector to a host of cyber security risks that are only just beginning to be understood. The current size of the cyber breach and privacy market is approximately $2 billion and is expected to grow to approximately $5 billion over the next five years as the number of first-time purchasers increases at a rapid pace. Cyber-related risk mitigation efforts and post-event remediation are gaining importance, as shareholders, regulators and rating agencies are increasingly focused on enterprise risk management (ERM).

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