Silent cyber demands a rethink in modelling

The insurance industry must address the issue of silent cyber risks hiding within traditional cyber insurance products. This is among the conclusions of a report published today by cyber risk analytics firm, CyberCube. It says that pressure from reinsurers to remove ambiguity from primary contracts will also force the hand of cedants.

According to the report, 'Accurately Assessing Silent Exposure: A Step Towards Strengthening the Cyber Market’s Development', cyber models need to expand their scope in order to cover a much broader range of insurance lines if non-affirmative cyber risks are to be identified and properly analysed.

CyberCube’s head of analytics, Ashwin Kashyap, said: “Insurers are finding themselves squeezed between regulators and reinsurers who both want the issue of non-affirmative cyber risk to be tackled. The potential cost implications of failing to address it are frightening.

“At present, global standalone cyber premiums are estimated to be in the region of $5.5 billion, but the connected exposures and premiums at risk from silent cyber across all Property and Casualty lines is higher by an order of magnitude. This explains the nervousness among market regulators and reinsurers.”

The report argues that the rapid growth of cyber insurance has created challenges for claims professionals and carriers seeking to set loss reserves and forecast their capital requirements. Kashyap added: “Insurers and reinsurers need to determine accurate cyber loss reserves, but currently it is proving very hard to allocate definitive loss reserves for the development profile of these incidents. For insurers, therefore, scenario-based modelling has got to be the route forward, but this isn’t without problems."

“The lack of high-quality, detailed exposure data for established lines of business is a brake on progress. Models need to be able to handle aggregated data and, in many cases, incomplete information is being used to provide estimates. This is clearly not helpful for the industry. Insurers will face challenges if they are held responsible for cyber-related claims as a result of ambiguous policy wordings in standard commercial products, such as business interruption covers.”

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