‘Accumulation risk a key concern’

While cyber insurance offerings and premium volumes have expanded sizeably, keeping up with demand is challenging and sustainable growth in the cyber insurance market should not be taken for granted, as accumulation risks need to be addressed in the context of a hyperconnected digital world, according to a study by The Geneva Association.

The study titled Advancing Accumulation Risk Management in Cyber Insurance identifies three prerequisites to ensure sustainability of cyber insurance. First customers and insurers must facilitate resilience at the source of risk. Second, insurers need to make an acceptable return on capital. Third, available capital must absorb shocks from accumulation risks.

The report highlights four cyber accumulation risk challenges: A single large event or a series of consecutive events may make affirmative cyber insurance unprofitable; insurers and reinsurers could underestimate cyber exposures resulting in unplanned shocks from a major event; data of insufficient quality for more advanced modelling techniques; and governments predominantly fail to provide frameworks for the sharing of cyber terroris-induced losses.

In response, insurers have developed several approaches such as developing data analytics that analyse the characteristics of cyber risk as well as data protocols that combine company information with digital risk indicators. Novel approaches to analysing the risk footprint and corresponding threats impacting the ‘size of the footprint’ have also been found. Mapping cloud-related interconnectivity and digital supply chains and using machine learning to assess the relationship between claims frequency and multi-dimension exposure are other approaches.