Shaping an ILS strategy for cyber insurance

The evolution of cyber insurance continues at breakneck speed. Coverage is evolving to support a complex, interconnected world in which the efficiency benefits from technology are undermined by sophisticated threat actors seeking to exploit system vulnerabilities.

With 10,000 software security vulnerabilities discovered annually in off-the-shelf software components of global supply chains, business interruption has never been so complex. It has become a premier cyber security issue, at the forefront for boards and C-suite executives and putting pressure on re/insurance capacity. Well-publicised attacks that caused significant downtime to supply chains in 2017 resulted in billions of dollars of economic loss and the claims-adjustment process has been anything but smooth, with coverage disputes erupting over the business interruption losses.

Today, re/insurers are challenged to identify and price a rapidly evolving peril, quantify their aggregation of cyber exposure, and develop clearly defined coverage that matches the issues when the claims arise. The global economic losses stemming from cyber events sum to many multiples of the current cyber gross written premium. Original insureds want contract certainty and efficiency in business interruption loss payments.

It is in this gap that significant opportunity exists for the ILS markets.

Re/insurance executives have said that ILS is a “natural home” for cyber risk, an exposure that they say is too big for the traditional reinsurance sector to shoulder on its own. For their part, ILS investors have been receptive to assuming emerging risks, and they are just beginning to develop their points of view around cyber.

Read how the cyber re/insurance industry can support this process by working with ILS investors in the full version of the article, which first appeared in Reactions in April.