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Jay Guin, chief research officer at AIR Worldwide
11 September 2018 Insurance

No line safe from cyber risk

The re/insurance industry must begin to understand the wider threat that cyber events pose rather than seeing it as a single line of business, due to the potential impact it can have on other lines of business, Jay Guin, chief research officer at AIR Worldwide, told Monte Carlo Today.

“There is virtually no line of business that is safe from cyber, it is a matter of vulnerability,” said Guin.

AIR recently announced its collaboration with Capsicum Re as part of an effort to enhance the insurance industry’s modelling of non-affirmative cyber events, also known as ‘silent’ cyber incidents.

‘Silent’ cyber refers to events where non-cyber lines of business and industries are exposed to cyber-related losses, usually because cyber-related risk was not specifically excluded from the policy wording. The risk is that insurers could face higher-than-expected loss ratios when the cyber incidents occur, as they aren’t accounted for when underwritten.

“If there is a cyber attack, companies are very afraid of what their liability is,” said Guin. “For property, for instance, a systemic cyber attack could create physical damage to property.”

Examples of this can be seen in lines such as marine, whereby a ship’s navigation system is hacked. It is also a major risk in the energy sector, where it could trigger big business interruption claims were a national power grid to go down.

AIR believes D&O is also quite exposed, as directors could be found to be negligent and may face a large liability.

While the thought of a power grid going down this time last year may have had the industry very concerned over what the aggregation impact could be, Guin suggested that realistic power grid scenarios can now be modelled to find the range of losses.

The expenses on homeowners’ policies may be more subject to interpretation, but on the commercial side it is much clearer, with several billions of dollars of potential losses, particularly from business interruption.

Guin explained that AIR’s collaboration with Capsicum Re has helped bring the risk modeller market insight into the degree of vulnerabilities for the different lines of business.

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