Cyber: The generation game
Lobbyists and regulators in the US and UK have been calling on the global insurance industry to do more to counter the threat of cyber attacks and to provide products that the insurance market has historically not been able or willing to underwrite.
Cyber risk does not represent an easy singularity of exposure. At its nub, it represents converged risk that is increasingly more centric to enterprise risk. Capital—be that insurance, reinsurance or non-traditional—still looks at risk through siloes, yet this technology convergence requires a different approach. Our approach should equally apply to understanding technology, its weaknesses, the exposures created by technology convergence and especially, cybersecurity, in order for us as an industry to be more effective.
The Bermuda market is in a unique position to push us closer to that inflection point. The Bermuda market does not, in isolation, provide reinsurance solutions that are unavailable elsewhere—save one or two very notable exceptions. Yet, there is the opportunity for Bermuda to provide new, creative solutions that would drive progress in the cyber re/insurance space globally in a way that Europeans cannot—distracted as they are with EU’s General Data Protection Regulation (GDPR), which comes into force on May 25.
Similarly, in insurance-linked securities (ILS), the main focus is on capital management, stop loss, retrocession and industry loss warranty (ILW) solutions which only serve to move the same risk further down the risk ladder. The same focus on parametric approaches with innovative capital structures will serve to more evenly redistribute risk and drive the type of coverage innovation and progression so eagerly sought by clients. It will also provide the capital management and preservation more stridently being required by financial regulators.
At the core, there is the ongoing debate as to whether we, as an industry, are offering wide enough or valuable enough cyber coverage. Despite the opportunity to advance solutions, with one or two exceptions, Bermuda is not currently regarded as a driver for new coverage or product despite the dexterity, ambition and creativity shown in other areas.
If you break it down, it isn’t a question of whether the coverage is wide enough but rather, how can the modelling “bench strength” be used to enable more innovative capital to address client needs in a way that London and the US have been unable to.
Better modelling analysis
Cyber is a generational exposure that will represent an increasingly larger proportion of enterprise risk and, because of that, more modelling acuity is required to help reinsurance/non-traditional capital drive innovation forward in a way that the London and US markets have not. Bermuda has natural advantages in modelling and access to capital that should allow it to be a progressive leader in cyber insurance.
