Lloyd’s will deep dive on cyber to put oversight on par with nat cat
Lloyd's syndicate oversight authorities will be taking a deep dive into cyber exposures and capabilities with an eye to putting risk management and oversight tools on a par with what syndicates have for natural catastrophes, Kirsten Mitchell-Wallace, Lloyd's director of portfolio risk management, told syndicate leaders at the corporation's first quarter market message.
“Cyber has not had its hurricane Andrew,” Mitchell-Wallace said, citing “huge advances” in modelling and exposure management that followed hurricanes Andrew and Katrina. “In the case of cyber, we want to build the foundations before we need the roof.”
Cyber remains a much smaller threat to Lloyd's syndicates than the full array of natural catastrophes, but Lloyd's has little more than exposure sums and RDS diversification data to work from. “However, cyber is less well understood and more difficult to model than nat cat and these RDSs are untested.”
“Understanding cyber catastrophe has some way to go before it reaches the maturity of natural catastrophe,” she said. “So we are building a multi-disciplinary capability assessment considering each oversight principle as it relates to cyber.” That will eventually mean a probabilistic framework analogous to what Lloyd's uses for nat cat.
The build-out in oversight and underwriting tools may begin by plugging the obvious lack of what Mitchell-Wallace would consider an “adequate” cyber cat event definition, but must proceed to development of a "comprehensive view covering underwriting, exposure management, pricing, outwards reinsurance and capital.”
An adequate grasp of current exposures will require exposure data, scenarios and probabilistic models, a steep step up from the “snapshots” of possible outcomes seen by Lloyd's supervisors from their current data view, she said.
“When we have all three ingredients and, crucially, all of those work together, it will give confidence to take on more cyber risk as demand increases,” she said. Event preparation will follow shortly thereafter ahead of a lasting program of developing further insights and market intelligence.
Ahead of excellence on cyber catastrophe, any number of Lloyd's underwriters may need to catch up on some underwriting basics in the line just to manage attritional, Mitchell-Wallace suggested.
The best in the Lloyd’s market have “world class capabilities,” she said of managing attritional losses, with warning that such partial readiness won't handle the demand curve that lies ahead.
“The rest need to catch up with the best.”
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