Jeremy S. Platt, Managing Director and U.S. Cyber Specialty Practice Leader
The new year will also offer cyber carriers the chance to seize opportunities created by innovative technologies to adapt lessons from other lines of business. Today, risk management of a cyber event reflects characteristics of pandemic containment. The medical community has developed clearly defined metrics and rigorous procedures for public and private stakeholders to reduce the impact of an outbreak. Similarly, the date of occurrence, duration, common source connection, frequency and severity are significant factors in adjusting cyber (re)insurance claims, and often depend on some level of collaboration with public entities. But as discussed above, a common currency to analyze and discuss cyber exposures is still being perfected. Quantification of cyber losses is also complicated by "silent" all-risk policies where cyber is the peril, but no cyber exclusions exist.
Further, one of the key steps in addressing a pandemic outbreak involves early intervention and treatment, just as response to a cyber event depends on patching, repairing, and rebuilding software and networks quickly to restore customer confidence. Modern travel means a carrier of MERS or Ebola can potentially infect hundreds of people in a day. Malware such as Wannacry and Petya can spread and infect global networks even faster. Wannacry alone has impacted banks, factories, hospitals, government agencies, schools and transport systems in at least 150 countries - freezing computers, encrypting data, and demanding money through online bitcoin payments. The next attack could threaten critical infrastructure such as nuclear power plants or a power grid. Response and containment depend on early detection, robust understanding and effective treatment.
The challenge of the current modeling techniques is that the inputs and outputs are often not fully understood, which can be the key decision-making variables for (re)insurers, who have a fiduciary obligation to understand their risks. The Internet of Things, insurtech startups and the proliferation of smart devices enable the transparent, real-time data capture that can empower advanced interoperable models.
More effective, nimble analytics validated in an open source environment will allow users to confidently set enterprise risk management plans around cyber exposures. As our industry continues to better understand the cyber landscape, a push to develop interoperable models that leverage user-sourced, real-time data will increase the speed in which practitioners in both cyber and health fields can analyze events, quantify impacts and deploy forensic response resources, lessening the loss for what can often be a global event.
The transparency of interoperable models also allows users a clear understanding of the assumptions that drive the results, encouraging collaboration by (re)insurers, entrepreneurs, scientists, actuaries, computer programmers and others. This empowers multiple scientific views to inform hazard modules, the use of clients' own claims experience to shape vulnerability assumptions and financial engines that better reflect the complex nature of policy coverages. As the variety of threat actors continue to increase, such as state-sponsored agents, this diversity of inputs will especially help when confronting zero-day cyber-attacks, which can confound established treatment processes. Interoperable, transparent and auditable catastrophe models will benefit cyber stakeholders in both the public and private sectors by aiding the development of a common cyber currency that empowers ownership of risk and more informed, effective, and defensible risk management decisions.
Along with interoperable models, the right insurtech investment decisions can bring potential value-add opportunities to cyber risk management. The insurtech marketplace is expanding and represents the evolutionary next step for (re)insurance; combining data, analytics and technology in new and innovative ways. By more effectively and efficiently leveraging the robust data these companies create, and delivering it in seconds via mobile devices, the industry can drive down costs and increase client value.
To advance cyber solutions, Guy Carpenter continues to work alongside our clients to better understand this emerging risk, applying our history of broking, analytical and strategic advisory expertise to dynamic trends in operational technology (OT), business interruption and data integrity coverages. We are collaborating with thought leaders in both the (re)insurance space and in technology, robotics, and computer fields to gain insights into some of the most difficult to model exposures for this product and peril. This not only creates profitable growth opportunities for insurers, but improves the speed and effectiveness of public and private containment efforts that can help avoid a national or global event, better protecting communities, businesses, families, and resources.