‘Limited’ cyber insurability needs ‘novel’ approach, says Swiss Re
Demand for cyber insurance has grown but uncertainty around losses and evolving risk means “insurability is limited”, warned Jérôme Haegeli, Swiss Re group chief economist.
Such limited insurability restrains market capacity, he said, which means a “novel” approach to cyber insurance is needed now.
Haegeli’s comments came as the Swiss Re Institute (SRI) published a study showing how the cyber risk landscape is rapidly evolving, with cyberattacks increasing in severity and sophistication.
It said that hackers now use triple extortion techniques and ransomware-as-a-service has lowered entry barriers for cybercriminals.
Increased digitalisation of critical infrastructure has made it more vulnerable to cyber threats and has increased the potential for systemic fallout should a cyberattack interrupt the provision of clean water, energy or internet services for an extended period of time.
"As cyberattacks have increased, so has awareness of the risk – and with it, demand for cyber insurance is growing. However, due to the high degree of uncertainty regarding expected losses and the evolving nature of the risk, its insurability is limited. This in turn restrains market capacity, leading to a protection gap of around 90%," Haegeli said.
SRI’s study suggested three areas where the re/insurance industry can improve to manage cyber risk more efficiently and increase insurability. These are: increasing contract consistency and clarity; using standardised data and better modelling; and identifying new sources of capital.
The study said it was “critical to improve the understanding of the risk” to mitigate overall exposures and make society more resilient to cyberattacks that could have devastating and potentially systemic consequences. It found that the human and networked nature of cyber means the risk will continually evolve and, therefore, require coordination and collaboration between corporations, insurers and governments.
John Coletti, head cyber reinsurance at Swiss Re, said: "The cyber insurance market has tremendous growth potential. However, the market needs to mature further to ensure enough insurance protection is available. Our industry has a key role to play by addressing three issues: improving data and modelling, increasing contract consistency and clarity and identifying new sources of capital.”
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