Cyber catastrophe bonds & a public-private sector solution
The rising threat of cyber attacks to economies and businesses across the globe can be mitigated through public and private sector relationships, utilising the benefits of alternative risk transfer solutions such as catastrophe bonds, according to Z/Yen Group Limited.
Cyber risks are seen as one of the great opportunities for the insurance and reinsurance sector, as well as a great unknown and a key risk. Not only is the potential exposure enormous, so needing insurance and reinsurance capacity to cover it, but right now quantifying the risks is extremely difficult due to a lack of data and re/insurers risk accumulations and exposure concentrations.
The world today is reliant on electronic systems that operate global, and regional economies and, as international assets and business values continue to grow, the potential threat of property damage, business interruption and third-party liabilities as a result of cyber attacks, increases also.
The general opinion of many industry experts and analysts is not ‘if’ the next large cyber attack is going to happen, but ‘when,’ as the greater the volume of information and sensitive data that exists in the electronic landscape, the more it seems data is leaked, stolen, or misplaced.
It’s a vast, burgeoning risk that the insurance and reinsurance industry could help to protect against, but one that would require the support of the public sector, according to a recent report by Z/Yen Group Limited, published by Long Finance.
Cyber is seen as a catastrophic risk, thus requiring an approach akin to that taken to provide insurance, reinsurance and retrocession for large global natural disaster risks and other exposures such as terrorism or nuclear risks.
“If society wishes to bring insurance to bear on helping to manage cyber-risk, then cyber-catastrophe reinsurance needs to be available for property damage, business interruption, and third party liabilities in order to remove blockages to rapid take-up of cyber insurance by businesses,” says the report, which despite focusing on the UK, is applicable to other nations.
The report argues the case for a public-private sector cyber catastrophe reinsurance scheme, which would act like a pool that was funded by the insurance, reinsurance and the insurance-linked securities (ILS) industry, but utilises the expertise and support of the public sector.
Interestingly, the study highlights the potential for cyber catastrophe bonds and explains how ILS structures could be used as a successful means of mitigating the potential impacts of cyber attacks.
The report says; “The scheme would in effect be a pool funded by the insurance industry, seeking its own further reinsurance and possibly issuing insurance linked securities such as a cyber-catastrophe bond for further cover.”
Continuing to provide a couple of examples of what the trigger might look like for such a catastrophe bond, as follows: “More than 10% of the nation’s computers unusable for more than 12 hours,” or, “a power loss of more than one hour for more than 15% of the nation.”...MUCH MORE